Can any of the company-specific risk be diversified away by investing in both Jacobs Solutions and ICC 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 Jacobs Solutions and ICC Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Jacobs Solutions and ICC Holdings, you can compare the effects of market volatilities on Jacobs Solutions and ICC 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 Jacobs Solutions with a short position of ICC Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jacobs Solutions and ICC Holdings.
Diversification Opportunities for Jacobs Solutions and ICC Holdings
The 3 months correlation between Jacobs and ICC is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Jacobs Solutions and ICC Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICC Holdings and Jacobs Solutions 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 Jacobs Solutions are associated (or correlated) with ICC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICC Holdings has no effect on the direction of Jacobs Solutions i.e., Jacobs Solutions and ICC Holdings go up and down completely randomly.
Pair Corralation between Jacobs Solutions and ICC Holdings
Taking into account the 90-day investment horizon Jacobs Solutions is expected to generate 0.06 times more return on investment than ICC Holdings. However, Jacobs Solutions is 17.56 times less risky than ICC Holdings. It trades about -0.21 of its potential returns per unit of risk. ICC Holdings is currently generating about -0.29 per unit of risk. If you would invest 14,877 in Jacobs Solutions on March 6, 2024 and sell it today you would lose (1,079) from holding Jacobs Solutions or give up 7.25% of portfolio value over 90 days.
Over the last 90 days Jacobs Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady forward-looking indicators, Jacobs Solutions is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.
Over the last 90 days ICC Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.