Correlation Between Dow Jones and Johnson Controls
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Johnson Controls into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Johnson Controls International, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Johnson Controls. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Johnson Controls.
Diversification Opportunities for Dow Jones and Johnson Controls
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Johnson is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Johnson Controls go up and down completely randomly.
Pair Corralation between Dow Jones and Johnson Controls
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.2 times less return on investment than Johnson Controls. But when comparing it to its historical volatility, Dow Jones Industrial is 1.96 times less risky than Johnson Controls. It trades about 0.16 of its potential returns per unit of risk. Johnson Controls International is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 7,039 in Johnson Controls International on August 30, 2024 and sell it today you would earn a total of 1,310 from holding Johnson Controls International or generate 18.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.44% |
| Values | Daily Returns |
Dow Jones Industrial vs. Johnson Controls International
Performance |
| Timeline |
Dow Jones and Johnson Controls Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Johnson Controls International
Pair trading matchups for Johnson Controls
Pair Trading with Dow Jones and Johnson Controls
The main advantage of trading using opposite Dow Jones and Johnson Controls positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Skillful Craftsman Education | Dow Jones vs. Acco Brands | Dow Jones vs. Cracker Barrel Old | Dow Jones vs. Coursera |
| Johnson Controls vs. STMicroelectronics NV | Johnson Controls vs. Mindflair Plc | Johnson Controls vs. Norwegian Air Shuttle | Johnson Controls vs. LPKF Laser Electronics |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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