Correlation Between JAPAN AIRLINES and MidCap Financial

Can any of the company-specific risk be diversified away by investing in both JAPAN AIRLINES and MidCap Financial 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 AIRLINES and MidCap Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JAPAN AIRLINES and MidCap Financial Investment, you can compare the effects of market volatilities on JAPAN AIRLINES and MidCap Financial 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 AIRLINES with a short position of MidCap Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN AIRLINES and MidCap Financial.

Diversification Opportunities for JAPAN AIRLINES and MidCap Financial

0.64

Correlation Coefficient

JAPAN AIRLINES  MidCap Financial

Poor diversification

The 3 months correlation between JAPAN and MidCap is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv and JAPAN AIRLINES 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 JAPAN AIRLINES are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of JAPAN AIRLINES i.e., JAPAN AIRLINES and MidCap Financial go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and MidCap Financial

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to under-perform the MidCap Financial. But the stock apears to be less risky and, when comparing its historical volatility, JAPAN AIRLINES is 1.12 times less risky than MidCap Financial. The stock trades about -0.41 of its potential returns per unit of risk. The MidCap Financial Investment is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,287  in MidCap Financial Investment on October 11, 2024 and sell it today you would lose (10.00) from holding MidCap Financial Investment or give up 0.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

JAPAN AIRLINES  vs.  MidCap Financial Investment

JAPAN AIRLINES

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

MidCap Financial Inv

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with JAPAN AIRLINES and MidCap Financial

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

The idea behind JAPAN AIRLINES and MidCap Financial Investment 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.