Correlation Between East Japan and MTR
Can any of the company-specific risk be diversified away by investing in both East Japan and MTR 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 MTR 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 MTR Limited, you can compare the effects of market volatilities on East Japan and MTR 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 MTR. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Japan and MTR.
Diversification Opportunities for East Japan and MTR
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between East and MTR is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding East Japan Railway and MTR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR 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 MTR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Limited has no effect on the direction of East Japan i.e., East Japan and MTR go up and down completely randomly.
Pair Corralation between East Japan and MTR
Assuming the 90 days horizon East Japan Railway is expected to under-perform the MTR. In addition to that, East Japan is 1.1 times more volatile than MTR Limited. It trades about -0.09 of its total potential returns per unit of risk. MTR Limited is currently generating about 0.05 per unit of volatility. If you would invest 326.00 in MTR Limited on September 27, 2024 and sell it today you would earn a total of 4.00 from holding MTR Limited or generate 1.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East Japan Railway vs. MTR Limited
Performance |
| Timeline |
| East Japan Railway |
| MTR Limited |
East Japan and MTR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East Japan and MTR
The main advantage of trading using opposite East Japan and MTR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Japan position performs unexpectedly, MTR 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 MTR will offset losses from the drop in MTR's long position.| East Japan vs. Canadian National Railway | East Japan vs. MTR Limited | East Japan vs. CRRC Limited | East Japan vs. Central Japan Railway |
| MTR vs. Canadian National Railway | MTR vs. CRRC Limited | MTR vs. Central Japan Railway | MTR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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