Correlation Between GMéxico Transportes and West Japan

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

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

Diversification Opportunities for GMéxico Transportes and West Japan

0.32

Correlation Coefficient

GMéxico Transportes  West Japan

Weak diversification

The 3 months correlation between GMéxico and West is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding GMxico Transportes SAB and West Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Japan Railway and GMéxico Transportes 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 GMxico Transportes SAB are associated (or correlated) with West Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Japan Railway has no effect on the direction of GMéxico Transportes i.e., GMéxico Transportes and West Japan go up and down completely randomly.

Pair Corralation between GMéxico Transportes and West Japan

Assuming the 90 days horizon GMxico Transportes SAB is expected to generate 5.32 times more return on investment than West Japan. However, GMéxico Transportes is 5.32 times more volatile than West Japan Railway. It trades about 0.12 of its potential returns per unit of risk. West Japan Railway is currently generating about 0.01 per unit of risk. If you would invest  110.00  in GMxico Transportes SAB on October 26, 2024 and sell it today you would earn a total of  46.00  from holding GMxico Transportes SAB or generate 41.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

GMxico Transportes SAB  vs.  West Japan Railway

GMxico Transportes SAB

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMxico Transportes SAB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, GMéxico Transportes reported solid returns over the last few months and may actually be approaching a breakup point.

West Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, West 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 GMéxico Transportes and West Japan

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

The idea behind GMxico Transportes SAB and West 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 Correlations module to find global opportunities by holding instruments from different markets.