Can any of the company-specific risk be diversified away by investing in both JPMorgan Chase and Meta Platforms 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 JPMorgan Chase and Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between JPMorgan Chase Co and Meta Platforms, you can compare the effects of market volatilities on JPMorgan Chase and Meta Platforms 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 JPMorgan Chase with a short position of Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of JPMorgan Chase and Meta Platforms.
Diversification Opportunities for JPMorgan Chase and Meta Platforms
The 3 months correlation between JPMorgan and Meta is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Chase Co and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms and JPMorgan Chase 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 JPMorgan Chase Co are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of JPMorgan Chase i.e., JPMorgan Chase and Meta Platforms go up and down completely randomly.
Pair Corralation between JPMorgan Chase and Meta Platforms
Considering the 90-day investment horizon JPMorgan Chase Co is expected to generate 0.51 times more return on investment than Meta Platforms. However, JPMorgan Chase Co is 1.96 times less risky than Meta Platforms. It trades about 0.8 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.18 per unit of risk. If you would invest 14,142 in JPMorgan Chase Co on September 3, 2023 and sell it today you would earn a total of 1,542 from holding JPMorgan Chase Co or generate 10.9% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Chase Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, JPMorgan Chase 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 Meta Platforms are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in January 2024.
JPMorgan Chase and Meta Platforms Volatility Contrast
Predicted Return Density
Pair Trading with JPMorgan Chase and Meta Platforms
The main advantage of trading using opposite JPMorgan Chase and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JPMorgan Chase position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.
The idea behind JPMorgan Chase Co and Meta Platforms 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
Portfolio dashboard that provides centralized access to all your investments
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions