Correlation Between China Communications and Johnson Controls
Can any of the company-specific risk be diversified away by investing in both China Communications and Johnson Controls 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 China Communications and Johnson Controls into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Communications Construction and Johnson Controls International, you can compare the effects of market volatilities on China Communications and Johnson Controls 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 China Communications with a short position of Johnson Controls. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Communications and Johnson Controls.
Diversification Opportunities for China Communications and Johnson Controls
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Johnson is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Construct and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int and China Communications 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 China Communications Construction are associated (or correlated) with Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of China Communications i.e., China Communications and Johnson Controls go up and down completely randomly.
Pair Corralation between China Communications and Johnson Controls
Assuming the 90 days horizon China Communications Construction is expected to under-perform the Johnson Controls. In addition to that, China Communications is 1.58 times more volatile than Johnson Controls International. It trades about -0.07 of its total potential returns per unit of risk. Johnson Controls International is currently generating about 0.27 per unit of volatility. If you would invest 7,091 in Johnson Controls International on August 29, 2024 and sell it today you would earn a total of 909.00 from holding Johnson Controls International or generate 12.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Communications Construct vs. Johnson Controls International
Performance |
| Timeline |
| China Communications |
| Johnson Controls Int |
China Communications and Johnson Controls Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Communications and Johnson Controls
The main advantage of trading using opposite China Communications and Johnson Controls positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Communications position performs unexpectedly, Johnson Controls 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 Controls will offset losses from the drop in Johnson Controls' long position.| China Communications vs. China Railway Construction | China Communications vs. Superior Plus Corp | China Communications vs. NMI Holdings | China Communications vs. Origin Agritech |
| Johnson Controls vs. China Railway Construction | Johnson Controls vs. Superior Plus Corp | Johnson Controls vs. NMI Holdings | Johnson Controls vs. Origin Agritech |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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