Correlation Between Johnson Controls and Johnson Electric

Can any of the company-specific risk be diversified away by investing in both Johnson Controls and Johnson Electric 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 Electric 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 Electric Holdings, you can compare the effects of market volatilities on Johnson Controls and Johnson Electric 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 Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Controls and Johnson Electric.

Diversification Opportunities for Johnson Controls and Johnson Electric

0.4

Correlation Coefficient

Johnson Controls  Johnson Electric

Very weak diversification

The 3 months correlation between Johnson and Johnson is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Johnson Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Electric Holdings 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 Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Electric Holdings has no effect on the direction of Johnson Controls i.e., Johnson Controls and Johnson Electric go up and down completely randomly.

Pair Corralation between Johnson Controls and Johnson Electric

Assuming the 90 days trading horizon Johnson Controls is expected to generate 4.11 times less return on investment than Johnson Electric. But when comparing it to its historical volatility, Johnson Controls International is 1.93 times less risky than Johnson Electric. It trades about 0.04 of its potential returns per unit of risk. Johnson Electric Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Johnson Electric Holdings on October 4, 2024 and sell it today you would earn a total of  87.00  from holding Johnson Electric Holdings or generate 189.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Johnson Controls International  vs.  Johnson Electric Holdings

Johnson Controls Int

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Johnson Controls may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Johnson Electric Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Electric Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Johnson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Controls and Johnson Electric

The main advantage of trading using opposite Johnson Controls and Johnson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Controls position performs unexpectedly, Johnson Electric 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 Electric will offset losses from the drop in Johnson Electric's long position.

The idea behind Johnson Controls International and Johnson Electric Holdings 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.