Correlation Between Japan Post and Dairy Farm
Can any of the company-specific risk be diversified away by investing in both Japan Post and Dairy Farm 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 Japan Post and Dairy Farm into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Post Insurance and Dairy Farm International, you can compare the effects of market volatilities on Japan Post and Dairy Farm 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 Japan Post with a short position of Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Post and Dairy Farm.
Diversification Opportunities for Japan Post and Dairy Farm
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Japan and Dairy is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Japan Post Insurance and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and Japan Post 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 Japan Post Insurance are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of Japan Post i.e., Japan Post and Dairy Farm go up and down completely randomly.
Pair Corralation between Japan Post and Dairy Farm
Assuming the 90 days trading horizon Japan Post Insurance is expected to generate 0.72 times more return on investment than Dairy Farm. However, Japan Post Insurance is 1.4 times less risky than Dairy Farm. It trades about 0.02 of its potential returns per unit of risk. Dairy Farm International is currently generating about -0.01 per unit of risk. If you would invest 1,650 in Japan Post Insurance on September 19, 2024 and sell it today you would earn a total of 100.00 from holding Japan Post Insurance or generate 6.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Japan Post Insurance vs. Dairy Farm International
Performance |
| Timeline |
| Japan Post Insurance |
| Dairy Farm International |
Japan Post and Dairy Farm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Post and Dairy Farm
The main advantage of trading using opposite Japan Post and Dairy Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Post position performs unexpectedly, Dairy Farm 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 Dairy Farm will offset losses from the drop in Dairy Farm's long position.The idea behind Japan Post Insurance and Dairy Farm 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.| Dairy Farm vs. Loblaw Companies Limited | Dairy Farm vs. Superior Plus Corp | Dairy Farm vs. SIVERS SEMICONDUCTORS AB | Dairy Farm vs. Norsk Hydro ASA |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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