Correlation Between Johnson Controls and Johnson Matthey

Can any of the company-specific risk be diversified away by investing in both Johnson Controls and Johnson Matthey at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Johnson Controls and Johnson Matthey into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Johnson Controls International and Johnson Matthey PLC, you can compare the effects of market volatilities on Johnson Controls and Johnson Matthey and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Johnson Controls with a short position of Johnson Matthey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Controls and Johnson Matthey.

Diversification Opportunities for Johnson Controls and Johnson Matthey

0.38

Correlation Coefficient

Johnson Controls  Johnson Matthey

Weak diversification

The 3 months correlation between Johnson and Johnson is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC and Johnson Controls is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Johnson Controls International are associated (or correlated) with Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of Johnson Controls i.e., Johnson Controls and Johnson Matthey go up and down completely randomly.

Pair Corralation between Johnson Controls and Johnson Matthey

Assuming the 90 days trading horizon Johnson Controls is expected to generate 71.13 times less return on investment than Johnson Matthey. In addition to that, Johnson Controls is 1.63 times more volatile than Johnson Matthey PLC. It trades about 0.0 of its total potential returns per unit of risk. Johnson Matthey PLC is currently generating about 0.04 per unit of volatility. If you would invest  1,585  in Johnson Matthey PLC on December 24, 2024 and sell it today you would earn a total of  44.00  from holding Johnson Matthey PLC or generate 2.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Johnson Controls International  vs.  Johnson Matthey PLC

Johnson Controls Int

Risk-Adjusted Performance

Very Weak

Over the last 90 days Johnson Controls International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Johnson Controls is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Johnson Matthey PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Matthey PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Johnson Matthey is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Johnson Controls and Johnson Matthey

The main advantage of trading using opposite Johnson Controls and Johnson Matthey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Controls position performs unexpectedly, Johnson Matthey can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Johnson Matthey will offset losses from the drop in Johnson Matthey's long position.

The idea behind Johnson Controls International and Johnson Matthey PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.