Can any of the company-specific risk be diversified away by investing in both JPMorgan Chase and Uber 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 JPMorgan Chase and Uber Technologies 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 Uber Technologies, you can compare the effects of market volatilities on JPMorgan Chase and Uber 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 JPMorgan Chase with a short position of Uber Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of JPMorgan Chase and Uber Technologies.
Diversification Opportunities for JPMorgan Chase and Uber Technologies
The 3 months correlation between JPMorgan and Uber is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Chase Co and Uber Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uber Technologies 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 Uber Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uber Technologies has no effect on the direction of JPMorgan Chase i.e., JPMorgan Chase and Uber Technologies go up and down completely randomly.
Pair Corralation between JPMorgan Chase and Uber Technologies
Considering the 90-day investment horizon JPMorgan Chase is expected to generate 2.04 times less return on investment than Uber Technologies. But when comparing it to its historical volatility, JPMorgan Chase Co is 2.0 times less risky than Uber Technologies. It trades about 0.8 of its potential returns per unit of risk. Uber Technologies is currently generating about 0.82 of returns per unit of risk over similar time horizon. If you would invest 4,648 in Uber Technologies on September 3, 2023 and sell it today you would earn a total of 1,087 from holding Uber Technologies or generate 23.39% 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 Uber Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain technical and fundamental indicators, Uber Technologies reported solid returns over the last few months and may actually be approaching a breakup point.
JPMorgan Chase and Uber Technologies Volatility Contrast
Predicted Return Density
Pair Trading with JPMorgan Chase and Uber Technologies
The main advantage of trading using opposite JPMorgan Chase and Uber Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JPMorgan Chase position performs unexpectedly, Uber 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 Uber Technologies will offset losses from the drop in Uber Technologies' long position.
The idea behind JPMorgan Chase Co and Uber 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.
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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