Correlation Between Central Japan and East Japan
Can any of the company-specific risk be diversified away by investing in both Central Japan and East Japan 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 East Japan 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 East Japan Railway, you can compare the effects of market volatilities on Central Japan and East Japan 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 East Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Japan and East Japan.
Diversification Opportunities for Central Japan and East Japan
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Central and East is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway 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 East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of Central Japan i.e., Central Japan and East Japan go up and down completely randomly.
Pair Corralation between Central Japan and East Japan
Assuming the 90 days horizon Central Japan Railway is expected to generate 0.76 times more return on investment than East Japan. However, Central Japan Railway is 1.32 times less risky than East Japan. It trades about 0.05 of its potential returns per unit of risk. East Japan Railway is currently generating about -0.2 per unit of risk. If you would invest 1,011 in Central Japan Railway on August 29, 2024 and sell it today you would earn a total of 10.00 from holding Central Japan Railway or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Central Japan Railway vs. East Japan Railway
Performance |
| Timeline |
| Central Japan Railway |
| East Japan Railway |
Central Japan and East Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Central Japan and East Japan
The main advantage of trading using opposite Central Japan and East Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Japan position performs unexpectedly, East Japan 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 East Japan will offset losses from the drop in East Japan's long position.| Central Japan vs. West Japan Railway | Central Japan vs. LB Foster | Central Japan vs. Norfolk Southern | Central Japan vs. Union Pacific |
| East Japan vs. Central Japan Railway | East Japan vs. LB Foster | East Japan vs. Canadian National Railway | East Japan vs. West Japan Railway |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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