Correlation Between Golden Agri-Resources and Central Japan

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

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

Diversification Opportunities for Golden Agri-Resources and Central Japan

-0.04

Correlation Coefficient

Golden Agri-Resources  Central Japan

Good diversification

The 3 months correlation between Golden and Central is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Golden Agri Resources 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 Golden Agri-Resources 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 Golden Agri Resources 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 Golden Agri-Resources i.e., Golden Agri-Resources and Central Japan go up and down completely randomly.

Pair Corralation between Golden Agri-Resources and Central Japan

Assuming the 90 days horizon Golden Agri Resources is expected to generate 7.87 times more return on investment than Central Japan. However, Golden Agri-Resources is 7.87 times more volatile than Central Japan Railway. It trades about 0.02 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.04 per unit of risk. If you would invest  18.00  in Golden Agri Resources on November 29, 2024 and sell it today you would lose (4.00) from holding Golden Agri Resources or give up 22.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	33.15%
Values	Daily Returns

Golden Agri Resources  vs.  Central Japan Railway

Golden Agri Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Agri Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Golden Agri-Resources reported solid returns over the last few months and may actually be approaching a breakup point.

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 Golden Agri-Resources and Central Japan

The main advantage of trading using opposite Golden Agri-Resources and Central Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Golden Agri-Resources 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 Golden Agri Resources 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.