Correlation Between East Japan and New Residential

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

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

Diversification Opportunities for East Japan and New Residential

-0.48

Correlation Coefficient

East Japan  New Residential

Very good diversification

The 3 months correlation between East and New is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding East Japan Railway and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and East Japan 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 East Japan Railway are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of East Japan i.e., East Japan and New Residential go up and down completely randomly.

Pair Corralation between East Japan and New Residential

Assuming the 90 days horizon East Japan Railway is expected to under-perform the New Residential. In addition to that, East Japan is 1.84 times more volatile than New Residential Investment. It trades about -0.05 of its total potential returns per unit of risk. New Residential Investment is currently generating about 0.18 per unit of volatility. If you would invest  947.00  in New Residential Investment on October 10, 2024 and sell it today you would earn a total of  116.00  from holding New Residential Investment or generate 12.25% return on investment over 90 days.

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

East Japan Railway  vs.  New Residential Investment

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 uncertain 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.

New Residential Inve

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with East Japan and New Residential

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

The idea behind East Japan Railway and New Residential Investment 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.

Check out your portfolio center.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.