Correlation Between Trane Technologies and Johnson Controls

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

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

Diversification Opportunities for Trane Technologies and Johnson Controls

0.92

Correlation Coefficient

Trane Technologies  Johnson Controls

Almost no diversification

The 3 months correlation between Trane and Johnson is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int and Trane Technologies 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 Trane Technologies plc are associated (or correlated) with Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of Trane Technologies i.e., Trane Technologies and Johnson Controls go up and down completely randomly.

Pair Corralation between Trane Technologies and Johnson Controls

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to generate 0.98 times more return on investment than Johnson Controls. However, Trane Technologies plc is 1.02 times less risky than Johnson Controls. It trades about 0.12 of its potential returns per unit of risk. Johnson Controls International is currently generating about 0.04 per unit of risk. If you would invest  17,214  in Trane Technologies plc on September 3, 2024 and sell it today you would earn a total of  24,408  from holding Trane Technologies plc or generate 141.79% return on investment over 90 days.

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

Trane Technologies plc  vs.  Johnson Controls International

Trane Technologies plc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Trane Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Johnson Controls Int

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Johnson Controls demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trane Technologies and Johnson Controls

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

The idea behind Trane Technologies plc and Johnson Controls International 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.