Correlation Between JAPAN AIRLINES and ABB

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

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

Diversification Opportunities for JAPAN AIRLINES and ABB

0.21

Correlation Coefficient

JAPAN AIRLINES  ABB

Modest diversification

The 3 months correlation between JAPAN and ABB is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of JAPAN AIRLINES i.e., JAPAN AIRLINES and ABB go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and ABB

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to under-perform the ABB. But the stock apears to be less risky and, when comparing its historical volatility, JAPAN AIRLINES is 1.49 times less risky than ABB. The stock trades about -0.01 of its potential returns per unit of risk. The ABB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,224  in ABB on December 3, 2024 and sell it today you would earn a total of  1,926  from holding ABB or generate 59.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.7%
Values	Daily Returns

JAPAN AIRLINES  vs.  ABB

JAPAN AIRLINES

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 4 (%) 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.

ABB

Risk-Adjusted Performance

Very Weak

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

Pair Trading with JAPAN AIRLINES and ABB

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

The idea behind JAPAN AIRLINES and ABB 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.