Correlation Between Johnson Matthey and Universal Health
Can any of the company-specific risk be diversified away by investing in both Johnson Matthey and Universal Health 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 Matthey and Universal Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Matthey PLC and Universal Health Services, you can compare the effects of market volatilities on Johnson Matthey and Universal Health 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 Matthey with a short position of Universal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Matthey and Universal Health.
Diversification Opportunities for Johnson Matthey and Universal Health
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Johnson and Universal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Matthey PLC and Universal Health Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Services and Johnson Matthey 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 Matthey PLC are associated (or correlated) with Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Services has no effect on the direction of Johnson Matthey i.e., Johnson Matthey and Universal Health go up and down completely randomly.
Pair Corralation between Johnson Matthey and Universal Health
Assuming the 90 days trading horizon Johnson Matthey PLC is expected to generate 0.8 times more return on investment than Universal Health. However, Johnson Matthey PLC is 1.25 times less risky than Universal Health. It trades about 0.24 of its potential returns per unit of risk. Universal Health Services is currently generating about 0.17 per unit of risk. If you would invest 133,700 in Johnson Matthey PLC on November 3, 2024 and sell it today you would earn a total of 9,500 from holding Johnson Matthey PLC or generate 7.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Johnson Matthey PLC vs. Universal Health Services
Performance |
| Timeline |
| Johnson Matthey PLC |
| Universal Health Services |
Johnson Matthey and Universal Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Matthey and Universal Health
The main advantage of trading using opposite Johnson Matthey and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Matthey position performs unexpectedly, Universal Health 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 Universal Health will offset losses from the drop in Universal Health's long position.| Johnson Matthey vs. First Class Metals | Johnson Matthey vs. Power Metal Resources | Johnson Matthey vs. Coeur Mining | Johnson Matthey vs. Wheaton Precious Metals |
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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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