Correlation Between FactSet Research and Central Japan

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

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

Diversification Opportunities for FactSet Research and Central Japan

0.55

Correlation Coefficient

FactSet Research  Central Japan

Very weak diversification

The 3 months correlation between FactSet and Central is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding FactSet Research Systems and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway and FactSet Research 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 FactSet Research Systems are associated (or correlated) with Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of FactSet Research i.e., FactSet Research and Central Japan go up and down completely randomly.

Pair Corralation between FactSet Research and Central Japan

Considering the 90-day investment horizon FactSet Research Systems is expected to under-perform the Central Japan. But the stock apears to be less risky and, when comparing its historical volatility, FactSet Research Systems is 1.4 times less risky than Central Japan. The stock trades about -0.12 of its potential returns per unit of risk. The Central Japan Railway is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,025  in Central Japan Railway on November 29, 2024 and sell it today you would lose (31.00) from holding Central Japan Railway or give up 3.02% of portfolio value over 90 days.

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

FactSet Research Systems  vs.  Central Japan Railway

FactSet Research Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days FactSet Research Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Central Japan Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FactSet Research and Central Japan

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

The idea behind FactSet Research Systems and Central 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.