Correlation Between Johnson Chemical and WPG Holdings
Can any of the company-specific risk be diversified away by investing in both Johnson Chemical and WPG Holdings 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 Chemical and WPG Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Chemical Pharmaceutical and WPG Holdings, you can compare the effects of market volatilities on Johnson Chemical and WPG Holdings 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 Chemical with a short position of WPG Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Chemical and WPG Holdings.
Diversification Opportunities for Johnson Chemical and WPG Holdings
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Johnson and WPG is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Chemical Pharmaceutica and WPG Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPG Holdings and Johnson Chemical 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 Chemical Pharmaceutical are associated (or correlated) with WPG Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPG Holdings has no effect on the direction of Johnson Chemical i.e., Johnson Chemical and WPG Holdings go up and down completely randomly.
Pair Corralation between Johnson Chemical and WPG Holdings
Assuming the 90 days trading horizon Johnson Chemical Pharmaceutical is expected to generate 7.43 times more return on investment than WPG Holdings. However, Johnson Chemical is 7.43 times more volatile than WPG Holdings. It trades about 0.04 of its potential returns per unit of risk. WPG Holdings is currently generating about 0.27 per unit of risk. If you would invest 6,550 in Johnson Chemical Pharmaceutical on November 3, 2024 and sell it today you would earn a total of 480.00 from holding Johnson Chemical Pharmaceutical or generate 7.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Chemical Pharmaceutica vs. WPG Holdings
Performance |
| Timeline |
| Johnson Chemical Pha |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| WPG Holdings |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
Johnson Chemical and WPG Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Chemical and WPG Holdings
The main advantage of trading using opposite Johnson Chemical and WPG Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Chemical position performs unexpectedly, WPG Holdings 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 WPG Holdings will offset losses from the drop in WPG Holdings' long position.The idea behind Johnson Chemical Pharmaceutical and WPG 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.Check out your portfolio center.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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