Correlation Between Japan Smaller and European Equity
Can any of the company-specific risk be diversified away by investing in both Japan Smaller and European Equity 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 Japan Smaller and European Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Smaller Capitalization and European Equity Closed, you can compare the effects of market volatilities on Japan Smaller and European Equity 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 Japan Smaller with a short position of European Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Smaller and European Equity.
Diversification Opportunities for Japan Smaller and European Equity
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Japan and European is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Japan Smaller Capitalization and European Equity Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Equity Closed and Japan Smaller 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 Japan Smaller Capitalization are associated (or correlated) with European Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Equity Closed has no effect on the direction of Japan Smaller i.e., Japan Smaller and European Equity go up and down completely randomly.
Pair Corralation between Japan Smaller and European Equity
Considering the 90-day investment horizon Japan Smaller Capitalization is expected to generate 0.95 times more return on investment than European Equity. However, Japan Smaller Capitalization is 1.05 times less risky than European Equity. It trades about 0.04 of its potential returns per unit of risk. European Equity Closed is currently generating about -0.24 per unit of risk. If you would invest 762.00 in Japan Smaller Capitalization on August 31, 2024 and sell it today you would earn a total of 5.00 from holding Japan Smaller Capitalization or generate 0.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Japan Smaller Capitalization vs. European Equity Closed
Performance |
| Timeline |
| Japan Smaller Capita |
| European Equity Closed |
Japan Smaller and European Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Smaller and European Equity
The main advantage of trading using opposite Japan Smaller and European Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Smaller position performs unexpectedly, European Equity 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 European Equity will offset losses from the drop in European Equity's long position.| Japan Smaller vs. Mexico Closed | Japan Smaller vs. NXG NextGen Infrastructure | Japan Smaller vs. Central Europe Russia | Japan Smaller vs. Taiwan Closed |
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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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