Correlation Between Johnson Controls and EAU Technologies

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

By analyzing existing cross correlation between Johnson Controls International and EAU Technologies, you can compare the effects of market volatilities on Johnson Controls and EAU Technologies 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 Johnson Controls with a short position of EAU Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Controls and EAU Technologies.

Diversification Opportunities for Johnson Controls and EAU Technologies

0.0

Correlation Coefficient

Johnson Controls  EAU Technologies

Pay attention - limited upside

The 3 months correlation between Johnson and EAU is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and EAU Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAU Technologies and Johnson Controls 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 Johnson Controls International are associated (or correlated) with EAU Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAU Technologies has no effect on the direction of Johnson Controls i.e., Johnson Controls and EAU Technologies go up and down completely randomly.

Pair Corralation between Johnson Controls and EAU Technologies

Considering the 90-day investment horizon Johnson Controls International is expected to generate 0.44 times more return on investment than EAU Technologies. However, Johnson Controls International is 2.29 times less risky than EAU Technologies. It trades about 0.03 of its potential returns per unit of risk. EAU Technologies is currently generating about -0.04 per unit of risk. If you would invest  5,007  in Johnson Controls International on February 6, 2024 and sell it today you would earn a total of  1,231  from holding Johnson Controls International or generate 24.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Johnson Controls International  vs.  EAU Technologies

Johnson Controls Int

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Johnson Controls demonstrated solid returns over the last few months and may actually be approaching a breakup point.

EAU Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EAU Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, EAU Technologies is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Johnson Controls and EAU Technologies

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

The idea behind Johnson Controls International and EAU Technologies 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.