Correlation Between Japan Steel and Traton SE

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

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

Diversification Opportunities for Japan Steel and Traton SE

-0.23

Correlation Coefficient

Japan Steel  Traton SE

Very good diversification

The 3 months correlation between Japan and Traton is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and Traton SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Traton SE and Japan Steel 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 The Japan Steel are associated (or correlated) with Traton SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Traton SE has no effect on the direction of Japan Steel i.e., Japan Steel and Traton SE go up and down completely randomly.

Pair Corralation between Japan Steel and Traton SE

Assuming the 90 days horizon Japan Steel is expected to generate 11.38 times less return on investment than Traton SE. In addition to that, Japan Steel is 1.5 times more volatile than Traton SE. It trades about 0.01 of its total potential returns per unit of risk. Traton SE is currently generating about 0.14 per unit of volatility. If you would invest  2,705  in Traton SE on December 20, 2024 and sell it today you would earn a total of  645.00  from holding Traton SE or generate 23.84% return on investment over 90 days.

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

The Japan Steel  vs.  Traton SE

Japan Steel

Risk-Adjusted Performance

Very Weak

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

Traton SE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Traton SE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Traton SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Steel and Traton SE

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

The idea behind The Japan Steel and Traton SE 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.