Correlation Between JAPAN AIRLINES and Ring Energy

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

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

Diversification Opportunities for JAPAN AIRLINES and Ring Energy

-0.28

Correlation Coefficient

JAPAN AIRLINES  Ring Energy

Very good diversification

The 3 months correlation between JAPAN and Ring is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and Ring Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ring Energy 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 Ring Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ring Energy has no effect on the direction of JAPAN AIRLINES i.e., JAPAN AIRLINES and Ring Energy go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and Ring Energy

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to generate 0.64 times more return on investment than Ring Energy. However, JAPAN AIRLINES is 1.56 times less risky than Ring Energy. It trades about 0.14 of its potential returns per unit of risk. Ring Energy is currently generating about -0.59 per unit of risk. If you would invest  1,480  in JAPAN AIRLINES on September 23, 2024 and sell it today you would earn a total of  50.00  from holding JAPAN AIRLINES or generate 3.38% return on investment over 90 days.

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

JAPAN AIRLINES  vs.  Ring Energy

JAPAN AIRLINES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Ring Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ring Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with JAPAN AIRLINES and Ring Energy

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

The idea behind JAPAN AIRLINES and Ring Energy 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.