Correlation Between Shrapnel and JAR

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

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

Diversification Opportunities for Shrapnel and JAR

0.65

Correlation Coefficient

Shrapnel  JAR

Poor diversification

The 3 months correlation between Shrapnel and JAR is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shrapnel and JAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAR and Shrapnel 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 Shrapnel are associated (or correlated) with JAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAR has no effect on the direction of Shrapnel i.e., Shrapnel and JAR go up and down completely randomly.

Pair Corralation between Shrapnel and JAR

Assuming the 90 days trading horizon Shrapnel is expected to under-perform the JAR. In addition to that, Shrapnel is 2.54 times more volatile than JAR. It trades about -0.18 of its total potential returns per unit of risk. JAR is currently generating about -0.05 per unit of volatility. If you would invest  0.28  in JAR on February 7, 2024 and sell it today you would lose (0.02) from holding JAR or give up 7.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Shrapnel  vs.  JAR

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

JAR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JAR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, JAR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shrapnel and JAR

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

The idea behind Shrapnel and JAR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.