Correlation Between Food Life and JAPAN AIRLINES

Can any of the company-specific risk be diversified away by investing in both Food Life and JAPAN AIRLINES 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 Food Life and JAPAN AIRLINES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Food Life Companies and JAPAN AIRLINES, you can compare the effects of market volatilities on Food Life and JAPAN AIRLINES 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 Food Life with a short position of JAPAN AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and JAPAN AIRLINES.

Diversification Opportunities for Food Life and JAPAN AIRLINES

0.91

Correlation Coefficient

Food Life  JAPAN AIRLINES

Almost no diversification

The 3 months correlation between Food and JAPAN is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and JAPAN AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN AIRLINES and Food Life 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 Food Life Companies are associated (or correlated) with JAPAN AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN AIRLINES has no effect on the direction of Food Life i.e., Food Life and JAPAN AIRLINES go up and down completely randomly.

Pair Corralation between Food Life and JAPAN AIRLINES

Assuming the 90 days horizon Food Life Companies is expected to under-perform the JAPAN AIRLINES. In addition to that, Food Life is 1.97 times more volatile than JAPAN AIRLINES. It trades about -0.38 of its total potential returns per unit of risk. JAPAN AIRLINES is currently generating about -0.21 per unit of volatility. If you would invest  1,520  in JAPAN AIRLINES on October 22, 2024 and sell it today you would lose (50.00) from holding JAPAN AIRLINES or give up 3.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Food Life Companies  vs.  JAPAN AIRLINES

Food Life Companies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Food Life is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

JAPAN AIRLINES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Food Life and JAPAN AIRLINES

The main advantage of trading using opposite Food Life and JAPAN AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Food Life position performs unexpectedly, JAPAN AIRLINES 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 JAPAN AIRLINES will offset losses from the drop in JAPAN AIRLINES's long position.

The idea behind Food Life Companies and JAPAN AIRLINES 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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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.