Correlation Between East Japan and CRRC
Can any of the company-specific risk be diversified away by investing in both East Japan and CRRC 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 CRRC 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 CRRC Limited, you can compare the effects of market volatilities on East Japan and CRRC 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 CRRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Japan and CRRC.
Diversification Opportunities for East Japan and CRRC
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between East and CRRC is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding East Japan Railway and CRRC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRRC Limited 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 CRRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRRC Limited has no effect on the direction of East Japan i.e., East Japan and CRRC go up and down completely randomly.
Pair Corralation between East Japan and CRRC
Assuming the 90 days horizon East Japan Railway is expected to under-perform the CRRC. But the stock apears to be less risky and, when comparing its historical volatility, East Japan Railway is 1.25 times less risky than CRRC. The stock trades about -0.03 of its potential returns per unit of risk. The CRRC Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 56.00 in CRRC Limited on September 26, 2024 and sell it today you would earn a total of 5.00 from holding CRRC Limited or generate 8.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East Japan Railway vs. CRRC Limited
Performance |
| Timeline |
| East Japan Railway |
| CRRC Limited |
East Japan and CRRC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East Japan and CRRC
The main advantage of trading using opposite East Japan and CRRC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Japan position performs unexpectedly, CRRC 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 CRRC will offset losses from the drop in CRRC's long position.| East Japan vs. MAGIC SOFTWARE ENTR | East Japan vs. MCEWEN MINING INC | East Japan vs. Perseus Mining Limited | East Japan vs. CPU SOFTWAREHOUSE |
| CRRC vs. Canadian National Railway | CRRC vs. MTR Limited | CRRC vs. Central Japan Railway | CRRC vs. East 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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