Correlation Between JAR and Shrapnel

Can any of the company-specific risk be diversified away by investing in both JAR and Shrapnel 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 JAR and Shrapnel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JAR and Shrapnel, you can compare the effects of market volatilities on JAR and Shrapnel 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 JAR with a short position of Shrapnel. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAR and Shrapnel.

Diversification Opportunities for JAR and Shrapnel

0.68

Correlation Coefficient

JAR  Shrapnel

Poor diversification

The 3 months correlation between JAR and Shrapnel is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding JAR and Shrapnel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shrapnel and JAR 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 JAR are associated (or correlated) with Shrapnel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shrapnel has no effect on the direction of JAR i.e., JAR and Shrapnel go up and down completely randomly.

Pair Corralation between JAR and Shrapnel

Assuming the 90 days trading horizon JAR is expected to generate 4.65 times less return on investment than Shrapnel. But when comparing it to its historical volatility, JAR is 5.5 times less risky than Shrapnel. It trades about 0.06 of its potential returns per unit of risk. Shrapnel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Shrapnel on January 30, 2024 and sell it today you would earn a total of  17.00  from holding Shrapnel or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

JAR  vs.  Shrapnel

JAR

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JAR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, JAR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAR and Shrapnel

The main advantage of trading using opposite JAR and Shrapnel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAR position performs unexpectedly, Shrapnel 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 Shrapnel will offset losses from the drop in Shrapnel's long position.

The idea behind JAR and Shrapnel 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.