Correlation Between First Graphene and Johnson Matthey
Can any of the company-specific risk be diversified away by investing in both First Graphene and Johnson Matthey 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 First Graphene and Johnson Matthey into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Graphene and Johnson Matthey PLC, you can compare the effects of market volatilities on First Graphene and Johnson Matthey 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 First Graphene with a short position of Johnson Matthey. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Graphene and Johnson Matthey.
Diversification Opportunities for First Graphene and Johnson Matthey
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Johnson is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Graphene and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC and First Graphene 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 First Graphene are associated (or correlated) with Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of First Graphene i.e., First Graphene and Johnson Matthey go up and down completely randomly.
Pair Corralation between First Graphene and Johnson Matthey
Assuming the 90 days horizon First Graphene is expected to generate 7.0 times more return on investment than Johnson Matthey. However, First Graphene is 7.0 times more volatile than Johnson Matthey PLC. It trades about 0.04 of its potential returns per unit of risk. Johnson Matthey PLC is currently generating about -0.02 per unit of risk. If you would invest 8.40 in First Graphene on August 26, 2024 and sell it today you would lose (6.20) from holding First Graphene or give up 73.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Graphene vs. Johnson Matthey PLC
Performance |
| Timeline |
| First Graphene |
| Johnson Matthey PLC |
First Graphene and Johnson Matthey Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Graphene and Johnson Matthey
The main advantage of trading using opposite First Graphene and Johnson Matthey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Graphene position performs unexpectedly, Johnson Matthey 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 Matthey will offset losses from the drop in Johnson Matthey's long position.The idea behind First Graphene and Johnson Matthey PLC 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.| Johnson Matthey vs. First Graphene | Johnson Matthey vs. HUMANA INC | Johnson Matthey vs. Aquagold International | Johnson Matthey vs. Barloworld Ltd ADR |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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