Correlation Between LB Foster and East Japan

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

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

Diversification Opportunities for LB Foster and East Japan

-0.68

Correlation Coefficient

LB Foster  East Japan

Excellent diversification

The 3 months correlation between FSTR and East is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway and LB Foster 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 LB Foster are associated (or correlated) with East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of LB Foster i.e., LB Foster and East Japan go up and down completely randomly.

Pair Corralation between LB Foster and East Japan

Given the investment horizon of 90 days LB Foster is expected to under-perform the East Japan. In addition to that, LB Foster is 2.36 times more volatile than East Japan Railway. It trades about -0.14 of its total potential returns per unit of risk. East Japan Railway is currently generating about 0.2 per unit of volatility. If you would invest  879.00  in East Japan Railway on December 27, 2024 and sell it today you would earn a total of  132.00  from holding East Japan Railway or generate 15.02% return on investment over 90 days.

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

LB Foster  vs.  East Japan Railway

LB Foster

Risk-Adjusted Performance

Very Weak

Over the last 90 days LB Foster has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

East Japan Railway

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in East Japan Railway are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, East Japan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LB Foster and East Japan

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

The idea behind LB Foster and East 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.