Correlation Between East Japan and CRRC

Can any of the company-specific risk be diversified away by investing in both East Japan and CRRC 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 CRRC 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 CRRC Limited, you can compare the effects of market volatilities on East Japan and CRRC 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 CRRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Japan and CRRC.

Diversification Opportunities for East Japan and CRRC

0.04

Correlation Coefficient

East Japan  CRRC

Significant diversification

The 3 months correlation between East and CRRC is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding East Japan Railway and CRRC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRRC Limited 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 CRRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRRC Limited has no effect on the direction of East Japan i.e., East Japan and CRRC go up and down completely randomly.

Pair Corralation between East Japan and CRRC

Assuming the 90 days horizon East Japan is expected to generate 32.0 times less return on investment than CRRC. But when comparing it to its historical volatility, East Japan Railway is 2.51 times less risky than CRRC. It trades about 0.01 of its potential returns per unit of risk. CRRC Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  15.00  in CRRC Limited on October 5, 2024 and sell it today you would earn a total of  46.00  from holding CRRC Limited or generate 306.67% return on investment over 90 days.

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

East Japan Railway  vs.  CRRC Limited

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.

CRRC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CRRC Limited 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 East Japan and CRRC

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

The idea behind East Japan Railway and CRRC Limited 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.