Correlation Between East Japan and BTX Old

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Can any of the company-specific risk be diversified away by investing in both East Japan and BTX Old 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 BTX Old 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 BTX Old, you can compare the effects of market volatilities on East Japan and BTX Old 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 BTX Old. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Japan and BTX Old.

Diversification Opportunities for East Japan and BTX Old

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between EJPRF and BTX Old is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding East Japan Railway and BTX Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTX Old 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 BTX Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTX Old has no effect on the direction of East Japan i.e., East Japan and BTX Old go up and down completely randomly.

Pair Corralation between East Japan and BTX Old

Assuming the 90 days horizon East Japan Railway is expected to generate 2.29 times more return on investment than BTX Old. However, East Japan is 2.29 times more volatile than BTX Old. It trades about 0.12 of its potential returns per unit of risk. BTX Old is currently generating about 0.04 per unit of risk. If you would invest  6,505  in East Japan Railway on September 7, 2022 and sell it today you would lose (820.00)  from holding East Japan Railway or give up 12.61% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.99%
ValuesDaily Returns

East Japan Railway  vs.  BTX Old

 Performance (%) 
       Timeline  
East Japan Railway 
EJPRF Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in East Japan Railway are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, East Japan may actually be approaching a critical reversion point that can send shares even higher in January 2023.

EJPRF Price Channel

BTX Old 
BTX Old Performance
0 of 100
Over the last 90 days BTX Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unsteady basic indicators, BTX Old showed solid returns over the last few months and may actually be approaching a breakup point.

East Japan and BTX Old Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with East Japan and BTX Old

The main advantage of trading using opposite East Japan and BTX Old positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Japan position performs unexpectedly, BTX Old 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 BTX Old will offset losses from the drop in BTX Old's long position.
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The idea behind East Japan Railway and BTX Old 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.
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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