Correlation Between Central Japan and Alstom SA
Can any of the company-specific risk be diversified away by investing in both Central Japan and Alstom SA 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 Central Japan and Alstom SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Central Japan Railway and Alstom SA, you can compare the effects of market volatilities on Central Japan and Alstom SA 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 Central Japan with a short position of Alstom SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Japan and Alstom SA.
Diversification Opportunities for Central Japan and Alstom SA
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Central and Alstom is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and Central Japan 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 Central Japan Railway are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Central Japan i.e., Central Japan and Alstom SA go up and down completely randomly.
Pair Corralation between Central Japan and Alstom SA
Assuming the 90 days horizon Central Japan Railway is expected to under-perform the Alstom SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Central Japan Railway is 1.96 times less risky than Alstom SA. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Alstom SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,835 in Alstom SA on November 3, 2024 and sell it today you would earn a total of 143.00 from holding Alstom SA or generate 7.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Central Japan Railway vs. Alstom SA
Performance |
| Timeline |
| Central Japan Railway |
| Alstom SA |
Central Japan and Alstom SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Central Japan and Alstom SA
The main advantage of trading using opposite Central Japan and Alstom SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Japan position performs unexpectedly, Alstom SA 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 Alstom SA will offset losses from the drop in Alstom SA's long position.| Central Japan vs. West Japan Railway | Central Japan vs. LB Foster | Central Japan vs. East Japan Railway | Central Japan vs. Canadian National Railway |
| Alstom SA vs. Westinghouse Air Brake | Alstom SA vs. Canadian Pacific Railway | Alstom SA vs. Trinity Industries | Alstom SA vs. CSX Corporation |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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