Correlation Between Central Japan and West Japan
Can any of the company-specific risk be diversified away by investing in both Central Japan and West 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 West 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 West Japan Railway, you can compare the effects of market volatilities on Central Japan and West 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 West Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Japan and West Japan.
Diversification Opportunities for Central Japan and West Japan
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Central and West is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and West Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West 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 West Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Japan Railway has no effect on the direction of Central Japan i.e., Central Japan and West Japan go up and down completely randomly.
Pair Corralation between Central Japan and West Japan
Assuming the 90 days horizon Central Japan is expected to generate 5.63 times less return on investment than West Japan. In addition to that, Central Japan is 1.08 times more volatile than West Japan Railway. It trades about 0.05 of its total potential returns per unit of risk. West Japan Railway is currently generating about 0.28 per unit of volatility. If you would invest 1,737 in West Japan Railway on August 28, 2024 and sell it today you would earn a total of 110.00 from holding West Japan Railway or generate 6.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Central Japan Railway vs. West Japan Railway
Performance |
| Timeline |
| Central Japan Railway |
| West Japan Railway |
Central Japan and West Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Central Japan and West Japan
The main advantage of trading using opposite Central Japan and West Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Japan position performs unexpectedly, West 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 West Japan will offset losses from the drop in West 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 |
| West Japan vs. Central Japan Railway | West Japan vs. LB Foster | West Japan vs. East Japan Railway | West Japan vs. Greenbrier Companies |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
Other Complementary Tools
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Earnings Calls Check upcoming earnings announcements updated hourly across public exchanges |