Correlation Between Johnson Controls and Scientific Games

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

Diversification Opportunities for Johnson Controls and Scientific Games

0.59

Correlation Coefficient

Johnson Controls  Scientific Games

Very weak diversification

The 3 months correlation between Johnson and Scientific is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Scientific Games in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientific Games 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 Scientific Games. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientific Games has no effect on the direction of Johnson Controls i.e., Johnson Controls and Scientific Games go up and down completely randomly.

Pair Corralation between Johnson Controls and Scientific Games

Assuming the 90 days trading horizon Johnson Controls is expected to generate 1.5 times less return on investment than Scientific Games. But when comparing it to its historical volatility, Johnson Controls International is 1.2 times less risky than Scientific Games. It trades about 0.04 of its potential returns per unit of risk. Scientific Games is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,600  in Scientific Games on October 4, 2024 and sell it today you would earn a total of  2,500  from holding Scientific Games or generate 44.64% 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.  Scientific Games

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.

Scientific Games

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Johnson Controls and Scientific Games

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

The idea behind Johnson Controls International and Scientific Games 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.