Correlation Between Lear and Johnson Controls
Can any of the company-specific risk be diversified away by investing in both Lear and Johnson Controls 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 Lear and Johnson Controls into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and Johnson Controls International, you can compare the effects of market volatilities on Lear and Johnson Controls 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 Lear with a short position of Johnson Controls. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and Johnson Controls.
Diversification Opportunities for Lear and Johnson Controls
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Lear and Johnson is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int and Lear 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 Lear Corporation are associated (or correlated) with Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of Lear i.e., Lear and Johnson Controls go up and down completely randomly.
Pair Corralation between Lear and Johnson Controls
Considering the 90-day investment horizon Lear Corporation is expected to under-perform the Johnson Controls. In addition to that, Lear is 1.77 times more volatile than Johnson Controls International. It trades about -0.14 of its total potential returns per unit of risk. Johnson Controls International is currently generating about 0.05 per unit of volatility. If you would invest 6,410 in Johnson Controls International on January 26, 2024 and sell it today you would earn a total of 51.00 from holding Johnson Controls International or generate 0.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. Johnson Controls International
Performance |
| Timeline |
| Lear |
| Johnson Controls Int |
Lear and Johnson Controls Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and Johnson Controls
The main advantage of trading using opposite Lear and Johnson Controls positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear position performs unexpectedly, Johnson Controls 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 Controls will offset losses from the drop in Johnson Controls' long position.The idea behind Lear Corporation and Johnson Controls International 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 Controls vs. Carrier GlobalCorp | Johnson Controls vs. Lennox International | Johnson Controls vs. Masco | Johnson Controls vs. Carlisle Companies Incorporated |
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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