Correlation Between SK TELECOM and Central Japan
Can any of the company-specific risk be diversified away by investing in both SK TELECOM and Central 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 SK TELECOM and Central Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SK TELECOM TDADR and Central Japan Railway, you can compare the effects of market volatilities on SK TELECOM and Central 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 SK TELECOM with a short position of Central Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of SK TELECOM and Central Japan.
Diversification Opportunities for SK TELECOM and Central Japan
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between KMBA and Central is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding SK TELECOM TDADR and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway and SK TELECOM 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 SK TELECOM TDADR are associated (or correlated) with Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of SK TELECOM i.e., SK TELECOM and Central Japan go up and down completely randomly.
Pair Corralation between SK TELECOM and Central Japan
Assuming the 90 days trading horizon SK TELECOM TDADR is expected to generate 1.16 times more return on investment than Central Japan. However, SK TELECOM is 1.16 times more volatile than Central Japan Railway. It trades about 0.05 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.02 per unit of risk. If you would invest 1,900 in SK TELECOM TDADR on September 1, 2024 and sell it today you would earn a total of 360.00 from holding SK TELECOM TDADR or generate 18.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.64% |
| Values | Daily Returns |
SK TELECOM TDADR vs. Central Japan Railway
Performance |
| Timeline |
| SK TELECOM TDADR |
| Central Japan Railway |
SK TELECOM and Central Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SK TELECOM and Central Japan
The main advantage of trading using opposite SK TELECOM and Central Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SK TELECOM position performs unexpectedly, Central 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 Central Japan will offset losses from the drop in Central Japan's long position.The idea behind SK TELECOM TDADR and Central Japan Railway pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Central Japan vs. Union Pacific | Central Japan vs. Superior Plus Corp | Central Japan vs. NMI Holdings | Central Japan vs. Origin Agritech |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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