Can any of the company-specific risk be diversified away by investing in both Janus Asia and General Electric 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 General Electric 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 General Electric, you can compare the effects of market volatilities on Janus Asia and General Electric 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 General Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Janus Asia and General Electric.
Diversification Opportunities for Janus Asia and General Electric
The 3 months correlation between Janus and General is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding JANUS ASIA EQUITY and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Janus Asia i.e., Janus Asia and General Electric go up and down completely randomly.
Pair Corralation between Janus Asia and General Electric
Assuming the 90 days horizon Janus Asia Equity is expected to under-perform the General Electric. But the mutual fund apears to be less risky and, when comparing its historical volatility, Janus Asia Equity is 1.51 times less risky than General Electric. The mutual fund trades about -0.03 of its potential returns per unit of risk. The General Electric is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 11,178 in General Electric on September 7, 2023 and sell it today you would earn a total of 803.00 from holding General Electric or generate 7.18% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Janus Asia Equity are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Janus Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, General Electric may actually be approaching a critical reversion point that can send shares even higher in January 2024.
Janus Asia and General Electric Volatility Contrast
Predicted Return Density
Pair Trading with Janus Asia and General Electric
The main advantage of trading using opposite Janus Asia and General Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Janus Asia position performs unexpectedly, General Electric 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 General Electric will offset losses from the drop in General Electric's long position.
The idea behind Janus Asia Equity and General Electric 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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