Correlation Between CSX and East Japan

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

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

Diversification Opportunities for CSX and East Japan

0.11

Correlation Coefficient

CSX  East Japan

Average diversification

The 3 months correlation between CSX and East is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding CSX Corp. 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 CSX 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 CSX Corporation 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 CSX i.e., CSX and East Japan go up and down completely randomly.

Pair Corralation between CSX and East Japan

Assuming the 90 days horizon CSX is expected to generate 4.45 times less return on investment than East Japan. But when comparing it to its historical volatility, CSX Corporation is 1.12 times less risky than East Japan. It trades about 0.01 of its potential returns per unit of risk. East Japan Railway is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,489  in East Japan Railway on October 2, 2024 and sell it today you would earn a total of  191.00  from holding East Japan Railway or generate 12.83% return on investment over 90 days.

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

CSX Corp.  vs.  East Japan Railway

CSX Corporation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CSX Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CSX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 nearly stable basic indicators, East Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CSX and East Japan

The main advantage of trading using opposite CSX and East Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSX 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 CSX Corporation 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.