Correlation Between Costain Group and Johnson Matthey

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

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

Diversification Opportunities for Costain Group and Johnson Matthey

0.88

Correlation Coefficient

Costain Group  Johnson Matthey

Very poor diversification

The 3 months correlation between Costain and Johnson is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Costain Group PLC and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC and Costain Group 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 Costain Group PLC are associated (or correlated) with Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of Costain Group i.e., Costain Group and Johnson Matthey go up and down completely randomly.

Pair Corralation between Costain Group and Johnson Matthey

Assuming the 90 days trading horizon Costain Group is expected to generate 1.07 times less return on investment than Johnson Matthey. In addition to that, Costain Group is 1.05 times more volatile than Johnson Matthey PLC. It trades about 0.35 of its total potential returns per unit of risk. Johnson Matthey PLC is currently generating about 0.4 per unit of volatility. If you would invest  171,000  in Johnson Matthey PLC on April 19, 2025 and sell it today you would earn a total of  17,300  from holding Johnson Matthey PLC or generate 10.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Costain Group PLC  vs.  Johnson Matthey PLC

Costain Group PLC

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Costain Group PLC are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Costain Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Johnson Matthey PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Matthey PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Johnson Matthey unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costain Group and Johnson Matthey

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

The idea behind Costain Group PLC and Johnson Matthey PLC 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 Transaction History module to view history of all your transactions and understand their impact on performance.