Can any of the company-specific risk be diversified away by investing in both Jpmorgan International and Virtus Convertible 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 International and Virtus Convertible into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Jpmorgan International Equity and Virtus Convertible, you can compare the effects of market volatilities on Jpmorgan International and Virtus Convertible 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 International with a short position of Virtus Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jpmorgan International and Virtus Convertible.
Diversification Opportunities for Jpmorgan International and Virtus Convertible
The 3 months correlation between JPMORGAN and Virtus is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding JPMORGAN INTERNATIONAL EQUITY and Virtus Convertible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus Convertible and Jpmorgan International 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 International Equity are associated (or correlated) with Virtus Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus Convertible has no effect on the direction of Jpmorgan International i.e., Jpmorgan International and Virtus Convertible go up and down completely randomly.
Pair Corralation between Jpmorgan International and Virtus Convertible
Assuming the 90 days horizon Jpmorgan International Equity is expected to generate 1.45 times more return on investment than Virtus Convertible. However, Jpmorgan International is 1.45 times more volatile than Virtus Convertible. It trades about -0.01 of its potential returns per unit of risk. Virtus Convertible is currently generating about -0.02 per unit of risk. If you would invest 1,967 in Jpmorgan International Equity on September 7, 2023 and sell it today you would lose (173.00) from holding Jpmorgan International Equity or give up 8.8% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Jpmorgan International Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Jpmorgan International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Virtus Convertible has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Virtus Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Jpmorgan International and Virtus Convertible Volatility Contrast
Predicted Return Density
Pair Trading with Jpmorgan International and Virtus Convertible
The main advantage of trading using opposite Jpmorgan International and Virtus Convertible positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jpmorgan International position performs unexpectedly, Virtus Convertible 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 Virtus Convertible will offset losses from the drop in Virtus Convertible's long position.
The idea behind Jpmorgan International Equity and Virtus Convertible 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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