Correlation Between California Bond and Jpmorgan

Can any of the company-specific risk be diversified away by investing in both California Bond and Jpmorgan 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 California Bond and Jpmorgan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between California Bond Fund and Jpmorgan Equity Fund, you can compare the effects of market volatilities on California Bond and Jpmorgan 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 California Bond with a short position of Jpmorgan. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Bond and Jpmorgan.

Diversification Opportunities for California Bond and Jpmorgan

-0.13

Correlation Coefficient

California Bond  Jpmorgan

Good diversification

The 3 months correlation between California and Jpmorgan is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Jpmorgan Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jpmorgan Equity and California Bond 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 California Bond Fund are associated (or correlated) with Jpmorgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jpmorgan Equity has no effect on the direction of California Bond i.e., California Bond and Jpmorgan go up and down completely randomly.

Pair Corralation between California Bond and Jpmorgan

Assuming the 90 days horizon California Bond is expected to generate 5.31 times less return on investment than Jpmorgan. But when comparing it to its historical volatility, California Bond Fund is 3.24 times less risky than Jpmorgan. It trades about 0.07 of its potential returns per unit of risk. Jpmorgan Equity Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,765  in Jpmorgan Equity Fund on September 4, 2024 and sell it today you would earn a total of  988.00  from holding Jpmorgan Equity Fund or generate 55.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

California Bond Fund  vs.  Jpmorgan Equity Fund

California Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jpmorgan Equity

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jpmorgan Equity Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Jpmorgan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with California Bond and Jpmorgan

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

The idea behind California Bond Fund and Jpmorgan Equity Fund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.