Correlation Between Media and East Japan
Can any of the company-specific risk be diversified away by investing in both Media and East 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 Media and East Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Media and Games and East Japan Railway, you can compare the effects of market volatilities on Media and East 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 Media with a short position of East Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Media and East Japan.
Diversification Opportunities for Media and East Japan
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Media and East is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Media and Games and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway and Media 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 Media and Games are associated (or correlated) with East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of Media i.e., Media and East Japan go up and down completely randomly.
Pair Corralation between Media and East Japan
Assuming the 90 days trading horizon Media and Games is expected to generate 2.3 times more return on investment than East Japan. However, Media is 2.3 times more volatile than East Japan Railway. It trades about 0.05 of its potential returns per unit of risk. East Japan Railway is currently generating about 0.01 per unit of risk. If you would invest 163.00 in Media and Games on October 16, 2024 and sell it today you would earn a total of 106.00 from holding Media and Games or generate 65.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Media and Games vs. East Japan Railway
Performance |
| Timeline |
| Media and Games |
| East Japan Railway |
Media and East Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Media and East Japan
The main advantage of trading using opposite Media and East Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Media position performs unexpectedly, East 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 East Japan will offset losses from the drop in East Japan's long position.The idea behind Media and Games and East 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.| East Japan vs. Renesas Electronics | East Japan vs. NorAm Drilling AS | East Japan vs. Electronic Arts | East Japan vs. Nanjing Panda Electronics |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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