Correlation Between Aama Equity and Jpmorgan Equity

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

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

Diversification Opportunities for Aama Equity and Jpmorgan Equity

0.88

Correlation Coefficient

Aama Equity  Jpmorgan Equity

Very poor diversification

The 3 months correlation between Aama and Jpmorgan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Aama Equity Fund and Jpmorgan Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jpmorgan Equity and Aama Equity 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 Aama Equity Fund are associated (or correlated) with Jpmorgan Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jpmorgan Equity has no effect on the direction of Aama Equity i.e., Aama Equity and Jpmorgan Equity go up and down completely randomly.

Pair Corralation between Aama Equity and Jpmorgan Equity

Assuming the 90 days horizon Aama Equity Fund is expected to under-perform the Jpmorgan Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Aama Equity Fund is 1.33 times less risky than Jpmorgan Equity. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Jpmorgan Equity Fund is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  2,204  in Jpmorgan Equity Fund on February 2, 2024 and sell it today you would lose (52.00) from holding Jpmorgan Equity Fund or give up 2.36% of portfolio value over 90 days.

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

Aama Equity Fund  vs.  Jpmorgan Equity Fund

Aama Equity Fund

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aama Equity Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Aama Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jpmorgan Equity

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jpmorgan Equity Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Jpmorgan Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aama Equity and Jpmorgan Equity

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

The idea behind Aama Equity Fund and Jpmorgan Equity Fund 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.

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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.