Correlation Between JAR and XDN

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

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

Diversification Opportunities for JAR and XDN

0.43

Correlation Coefficient

JAR  XDN

Very weak diversification

The 3 months correlation between JAR and XDN is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding JAR and XDN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XDN 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 XDN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XDN has no effect on the direction of JAR i.e., JAR and XDN go up and down completely randomly.

Pair Corralation between JAR and XDN

Assuming the 90 days trading horizon JAR is expected to generate 4.36 times less return on investment than XDN. But when comparing it to its historical volatility, JAR is 2.63 times less risky than XDN. It trades about 0.05 of its potential returns per unit of risk. XDN is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.01  in XDN on January 30, 2024 and sell it today you would lose (0.01) from holding XDN or give up 72.97% of portfolio value over 90 days.

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

JAR  vs.  XDN

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.

XDN

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XDN are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XDN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAR and XDN

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

The idea behind JAR and XDN 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.