Correlation Between JSE and SP Global

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

By analyzing existing cross correlation between JSE Limited and SP Global, you can compare the effects of market volatilities on JSE and SP Global 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 JSE with a short position of SP Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of JSE and SP Global.

Diversification Opportunities for JSE and SP Global

Weak diversification

The 3 months correlation between JSE and SPGI is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding JSE Limited and SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Global and JSE 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 JSE Limited are associated (or correlated) with SP Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Global has no effect on the direction of JSE i.e., JSE and SP Global go up and down completely randomly.

Pair Corralation between JSE and SP Global

Assuming the 90 days horizon JSE Limited is expected to generate 1.31 times more return on investment than SP Global. However, JSE is 1.31 times more volatile than SP Global. It trades about -0.09 of its potential returns per unit of risk. SP Global is currently generating about -0.12 per unit of risk. If you would invest  489.00  in JSE Limited on July 5, 2023 and sell it today you would lose (25.00) from holding JSE Limited or give up 5.11% of portfolio value over 90 days.

JSE Limited  vs.  SP Global

JSE Limited

JSE Performance

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Over the last 90 days JSE Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, JSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

SP Global

SPGI Performance

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Over the last 90 days SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with JSE and SP Global

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

The idea behind JSE Limited and SP Global 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..