Correlation Between Canadian National and West Japan

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

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

Diversification Opportunities for Canadian National and West Japan

-0.55

Correlation Coefficient

Canadian National  West Japan

Excellent diversification

The 3 months correlation between Canadian and West is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and West Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Japan Railway and Canadian National 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 Canadian National Railway are associated (or correlated) with West Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Japan Railway has no effect on the direction of Canadian National i.e., Canadian National and West Japan go up and down completely randomly.

Pair Corralation between Canadian National and West Japan

Considering the 90-day investment horizon Canadian National Railway is expected to under-perform the West Japan. In addition to that, Canadian National is 1.11 times more volatile than West Japan Railway. It trades about 0.0 of its total potential returns per unit of risk. West Japan Railway is currently generating about 0.17 per unit of volatility. If you would invest  1,751  in West Japan Railway on December 29, 2024 and sell it today you would earn a total of  259.00  from holding West Japan Railway or generate 14.79% return on investment over 90 days.

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

Canadian National Railway  vs.  West Japan Railway

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

West Japan Railway

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in West Japan Railway are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, West Japan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian National and West Japan

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

The idea behind Canadian National Railway and West 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.