Correlation Between East Japan and West Japan
Can any of the company-specific risk be diversified away by investing in both East 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 East 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 East Japan Railway and West Japan Railway, you can compare the effects of market volatilities on East 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 East Japan with a short position of West Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Japan and West Japan.
Diversification Opportunities for East Japan and West Japan
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between East and West is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding East 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 East 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 East 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 East Japan i.e., East Japan and West Japan go up and down completely randomly.
Pair Corralation between East Japan and West Japan
Assuming the 90 days horizon East Japan Railway is expected to under-perform the West Japan. In addition to that, East Japan is 1.24 times more volatile than West Japan Railway. It trades about -0.06 of its total potential returns per unit of risk. West Japan Railway is currently generating about -0.06 per unit of volatility. If you would invest 1,924 in West Japan Railway on August 28, 2024 and sell it today you would lose (77.00) from holding West Japan Railway or give up 4.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
East Japan Railway vs. West Japan Railway
Performance |
| Timeline |
| East Japan Railway |
| West Japan Railway |
East Japan and West Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East Japan and West Japan
The main advantage of trading using opposite East Japan and West Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East 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.| East Japan vs. Central Japan Railway | East Japan vs. LB Foster | East Japan vs. Canadian National Railway | East Japan vs. West Japan Railway |
| 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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