Correlation Between Extended Market and Jhancock Diversified

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

By analyzing existing cross correlation between Extended Market Index and Jhancock Diversified Macro, you can compare the effects of market volatilities on Extended Market and Jhancock Diversified 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 Extended Market with a short position of Jhancock Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Jhancock Diversified.

Diversification Opportunities for Extended Market and Jhancock Diversified

-0.15

Correlation Coefficient

Extended Market  Jhancock Diversified

Good diversification

The 3 months correlation between Extended and Jhancock is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Jhancock Diversified Macro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jhancock Diversified and Extended Market 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 Extended Market Index are associated (or correlated) with Jhancock Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jhancock Diversified has no effect on the direction of Extended Market i.e., Extended Market and Jhancock Diversified go up and down completely randomly.

Pair Corralation between Extended Market and Jhancock Diversified

Assuming the 90 days horizon Extended Market Index is expected to generate 1.8 times more return on investment than Jhancock Diversified. However, Extended Market is 1.8 times more volatile than Jhancock Diversified Macro. It trades about 0.16 of its potential returns per unit of risk. Jhancock Diversified Macro is currently generating about 0.05 per unit of risk. If you would invest  2,248  in Extended Market Index on September 13, 2024 and sell it today you would earn a total of  232.00  from holding Extended Market Index or generate 10.32% return on investment over 90 days.

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

Extended Market Index  vs.  Jhancock Diversified Macro

Extended Market Index

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Extended Market Index are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Extended Market may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Jhancock Diversified

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jhancock Diversified Macro are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Jhancock Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Extended Market and Jhancock Diversified

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

The idea behind Extended Market Index and Jhancock Diversified Macro 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.