Correlation Between East Japan and CSX

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

Diversification Opportunities for East Japan and CSX

0.05

Correlation Coefficient

East Japan  CSX

Significant diversification

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

Pair Corralation between East Japan and CSX

Assuming the 90 days horizon East Japan is expected to generate 1.19 times less return on investment than CSX. In addition to that, East Japan is 1.28 times more volatile than CSX Corporation. It trades about 0.01 of its total potential returns per unit of risk. CSX Corporation is currently generating about 0.02 per unit of volatility. If you would invest  2,857  in CSX Corporation on September 23, 2024 and sell it today you would earn a total of  169.00  from holding CSX Corporation or generate 5.92% 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.  CSX Corp.

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.

CSX Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with East Japan and CSX

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

The idea behind East Japan Railway and CSX Corporation 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.