Can any of the company-specific risk be diversified away by investing in both Agilent Technologies and JPMorgan Chase 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 Agilent Technologies and JPMorgan Chase into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Agilent Technologies and JPMorgan Chase Co, you can compare the effects of market volatilities on Agilent Technologies and JPMorgan Chase 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 Agilent Technologies with a short position of JPMorgan Chase. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agilent Technologies and JPMorgan Chase.
Diversification Opportunities for Agilent Technologies and JPMorgan Chase
The 3 months correlation between Agilent and JPMorgan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Agilent Technologies and JPMorgan Chase Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan Chase and Agilent Technologies 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 Agilent Technologies are associated (or correlated) with JPMorgan Chase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan Chase has no effect on the direction of Agilent Technologies i.e., Agilent Technologies and JPMorgan Chase go up and down completely randomly.
Pair Corralation between Agilent Technologies and JPMorgan Chase
Taking into account the 90-day investment horizon Agilent Technologies is expected to generate 2.23 times more return on investment than JPMorgan Chase. However, Agilent Technologies is 2.23 times more volatile than JPMorgan Chase Co. It trades about 0.18 of its potential returns per unit of risk. JPMorgan Chase Co is currently generating about 0.21 per unit of risk. If you would invest 11,064 in Agilent Technologies on September 6, 2023 and sell it today you would earn a total of 1,824 from holding Agilent Technologies or generate 16.49% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Agilent Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Chase Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, JPMorgan Chase may actually be approaching a critical reversion point that can send shares even higher in January 2024.
Agilent Technologies and JPMorgan Chase Volatility Contrast
Predicted Return Density
Pair Trading with Agilent Technologies and JPMorgan Chase
The main advantage of trading using opposite Agilent Technologies and JPMorgan Chase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agilent Technologies position performs unexpectedly, JPMorgan Chase 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 JPMorgan Chase will offset losses from the drop in JPMorgan Chase's long position.
The idea behind Agilent Technologies and JPMorgan Chase Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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