Correlation Between DIVERSIFIED ROYALTY and JLF INVESTMENT

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

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

Diversification Opportunities for DIVERSIFIED ROYALTY and JLF INVESTMENT

-0.11

Correlation Coefficient

DIVERSIFIED ROYALTY  JLF INVESTMENT

Good diversification

The 3 months correlation between DIVERSIFIED and JLF is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and JLF INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JLF INVESTMENT and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY are associated (or correlated) with JLF INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JLF INVESTMENT has no effect on the direction of DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and JLF INVESTMENT go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and JLF INVESTMENT

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to generate 46.72 times less return on investment than JLF INVESTMENT. But when comparing it to its historical volatility, DIVERSIFIED ROYALTY is 37.7 times less risky than JLF INVESTMENT. It trades about 0.1 of its potential returns per unit of risk. JLF INVESTMENT is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1.00  in JLF INVESTMENT on May 7, 2025 and sell it today you would earn a total of  0.90  from holding JLF INVESTMENT or generate 90.0% return on investment over 90 days.

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

DIVERSIFIED ROYALTY  vs.  JLF INVESTMENT

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DIVERSIFIED ROYALTY reported solid returns over the last few months and may actually be approaching a breakup point.

JLF INVESTMENT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JLF INVESTMENT are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, JLF INVESTMENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIVERSIFIED ROYALTY and JLF INVESTMENT

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

The idea behind DIVERSIFIED ROYALTY and JLF INVESTMENT 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.