Correlation Between CRRC and East Japan

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

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

Diversification Opportunities for CRRC and East Japan

-0.05

Correlation Coefficient

CRRC  East Japan

Good diversification

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

Pair Corralation between CRRC and East Japan

Assuming the 90 days horizon CRRC Limited is expected to generate 2.27 times more return on investment than East Japan. However, CRRC is 2.27 times more volatile than East Japan Railway. It trades about 0.1 of its potential returns per unit of risk. East Japan Railway is currently generating about 0.01 per unit of risk. If you would invest  23.00  in CRRC Limited on September 23, 2024 and sell it today you would earn a total of  38.00  from holding CRRC Limited or generate 165.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.64%
Values	Daily Returns

CRRC Limited  vs.  East Japan Railway

CRRC Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CRRC Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CRRC reported solid returns over the last few months and may actually be approaching a breakup point.

East Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Japan Railway 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 CRRC and East Japan

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

The idea behind CRRC Limited and East 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.