Correlation Between Freightcar America and West Japan
Can any of the company-specific risk be diversified away by investing in both Freightcar America and West 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 Freightcar America and West Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freightcar America and West Japan Railway, you can compare the effects of market volatilities on Freightcar America and West 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 Freightcar America with a short position of West Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freightcar America and West Japan.
Diversification Opportunities for Freightcar America and West Japan
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Freightcar and West is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Freightcar America and West Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Japan Railway and Freightcar America 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 Freightcar America are associated (or correlated) with West Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Japan Railway has no effect on the direction of Freightcar America i.e., Freightcar America and West Japan go up and down completely randomly.
Pair Corralation between Freightcar America and West Japan
Given the investment horizon of 90 days Freightcar America is expected to under-perform the West Japan. In addition to that, Freightcar America is 3.2 times more volatile than West Japan Railway. It trades about -0.45 of its total potential returns per unit of risk. West Japan Railway is currently generating about 0.32 per unit of volatility. If you would invest 1,806 in West Japan Railway on November 27, 2024 and sell it today you would earn a total of 148.00 from holding West Japan Railway or generate 8.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Freightcar America vs. West Japan Railway
Performance |
| Timeline |
| Freightcar America |
| West Japan Railway |
Freightcar America and West Japan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Freightcar America and West Japan
The main advantage of trading using opposite Freightcar America and West Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freightcar America position performs unexpectedly, West 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 West Japan will offset losses from the drop in West Japan's long position.| Freightcar America vs. Greenbrier Companies | Freightcar America vs. LB Foster | Freightcar America vs. Westinghouse Air Brake | Freightcar America vs. CSX Corporation |
| West Japan vs. Central Japan Railway | West Japan vs. LB Foster | West Japan vs. East Japan Railway | West Japan vs. Greenbrier Companies |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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