Correlation Between Japan Post and China Resources

Can any of the company-specific risk be diversified away by investing in both Japan Post and China Resources 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 Japan Post and China Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Japan Post Insurance and China Resources Power, you can compare the effects of market volatilities on Japan Post and China Resources 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 Japan Post with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Post and China Resources.

Diversification Opportunities for Japan Post and China Resources

-0.3

Correlation Coefficient

Japan Post  China Resources

Very good diversification

The 3 months correlation between Japan and China is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Japan Post Insurance and China Resources Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Power and Japan Post 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 Japan Post Insurance are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Power has no effect on the direction of Japan Post i.e., Japan Post and China Resources go up and down completely randomly.

Pair Corralation between Japan Post and China Resources

Assuming the 90 days trading horizon Japan Post is expected to generate 10.13 times less return on investment than China Resources. But when comparing it to its historical volatility, Japan Post Insurance is 1.75 times less risky than China Resources. It trades about 0.02 of its potential returns per unit of risk. China Resources Power is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  57.00  in China Resources Power on October 4, 2024 and sell it today you would earn a total of  170.00  from holding China Resources Power or generate 298.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Japan Post Insurance  vs.  China Resources Power

Japan Post Insurance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Post Insurance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Japan Post may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Resources Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Japan Post and China Resources

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

The idea behind Japan Post Insurance and China Resources Power 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.