Correlation Between IShares Nikkei and Source JPX

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

By analyzing existing cross correlation between iShares Nikkei 225 and Source JPX Nikkei 400, you can compare the effects of market volatilities on IShares Nikkei and Source JPX 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 IShares Nikkei with a short position of Source JPX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and Source JPX.

Diversification Opportunities for IShares Nikkei and Source JPX

0.0

Correlation Coefficient

IShares Nikkei  Source JPX

Pay attention - limited upside

The 3 months correlation between IShares and Source is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and Source JPX Nikkei 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source JPX Nikkei and IShares Nikkei 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 iShares Nikkei 225 are associated (or correlated) with Source JPX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source JPX Nikkei has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and Source JPX go up and down completely randomly.

Pair Corralation between IShares Nikkei and Source JPX

If you would invest  2,994  in Source JPX Nikkei 400 on October 4, 2024 and sell it today you would earn a total of  26.00  from holding Source JPX Nikkei 400 or generate 0.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

iShares Nikkei 225  vs.  Source JPX Nikkei 400

iShares Nikkei 225

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Source JPX Nikkei

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Source JPX Nikkei 400 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Source JPX is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Nikkei and Source JPX

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

The idea behind iShares Nikkei 225 and Source JPX Nikkei 400 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.