Can any of the company-specific risk be diversified away by investing in both JANUS ASIA and Chevron Corp 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 JANUS ASIA and Chevron Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between JANUS ASIA EQUITY and Chevron Corp, you can compare the effects of market volatilities on JANUS ASIA and Chevron Corp 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 JANUS ASIA with a short position of Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of JANUS ASIA and Chevron Corp.
Diversification Opportunities for JANUS ASIA and Chevron Corp
The 3 months correlation between JANUS and Chevron is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding JANUS ASIA EQUITY and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and JANUS ASIA 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 JANUS ASIA EQUITY are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of JANUS ASIA i.e., JANUS ASIA and Chevron Corp go up and down completely randomly.
Pair Corralation between JANUS ASIA and Chevron Corp
Assuming the 90 days horizon JANUS ASIA EQUITY is expected to under-perform the Chevron Corp. But the mutual fund apears to be less risky and, when comparing its historical volatility, JANUS ASIA EQUITY is 1.28 times less risky than Chevron Corp. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Chevron Corp is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 16,021 in Chevron Corp on June 27, 2023 and sell it today you would earn a total of 607.00 from holding Chevron Corp or generate 3.79% return on investment over 90 days.
Over the last 90 days JANUS ASIA EQUITY has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, JANUS ASIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in October 2023.
The main advantage of trading using opposite JANUS ASIA and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JANUS ASIA position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.
The idea behind JANUS ASIA EQUITY and Chevron Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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