Correlation Between Aurora Innovation and Central Japan

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

By analyzing existing cross correlation between Aurora Innovation and Central Japan Railway, you can compare the effects of market volatilities on Aurora Innovation and Central 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 Aurora Innovation with a short position of Central Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aurora Innovation and Central Japan.

Diversification Opportunities for Aurora Innovation and Central Japan

-0.05

Correlation Coefficient

Aurora Innovation  Central Japan

Good diversification

The 3 months correlation between Aurora and Central is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Aurora Innovation and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway and Aurora Innovation 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 Aurora Innovation are associated (or correlated) with Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Aurora Innovation i.e., Aurora Innovation and Central Japan go up and down completely randomly.

Pair Corralation between Aurora Innovation and Central Japan

Considering the 90-day investment horizon Aurora Innovation is expected to generate 6.04 times more return on investment than Central Japan. However, Aurora Innovation is 6.04 times more volatile than Central Japan Railway. It trades about 0.05 of its potential returns per unit of risk. Central Japan Railway is currently generating about 0.05 per unit of risk. If you would invest  647.00  in Aurora Innovation on December 29, 2024 and sell it today you would earn a total of  22.00  from holding Aurora Innovation or generate 3.4% return on investment over 90 days.

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

Aurora Innovation  vs.  Central Japan Railway

Aurora Innovation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Innovation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Aurora Innovation reported solid returns over the last few months and may actually be approaching a breakup point.

Central Japan Railway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Japan Railway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aurora Innovation and Central Japan

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

The idea behind Aurora Innovation and Central 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.