Correlation Between Japan Asia and Imperial Metals

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

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

Diversification Opportunities for Japan Asia and Imperial Metals

0.43

Correlation Coefficient

Japan Asia  Imperial Metals

Very weak diversification

The 3 months correlation between Japan and Imperial is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Japan Asia Investment and Imperial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Metals and Japan Asia 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 Asia Investment are associated (or correlated) with Imperial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Metals has no effect on the direction of Japan Asia i.e., Japan Asia and Imperial Metals go up and down completely randomly.

Pair Corralation between Japan Asia and Imperial Metals

Assuming the 90 days horizon Japan Asia is expected to generate 2.02 times less return on investment than Imperial Metals. But when comparing it to its historical volatility, Japan Asia Investment is 2.21 times less risky than Imperial Metals. It trades about 0.04 of its potential returns per unit of risk. Imperial Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  128.00  in Imperial Metals on October 24, 2024 and sell it today you would earn a total of  6.00  from holding Imperial Metals or generate 4.69% return on investment over 90 days.

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

Japan Asia Investment  vs.  Imperial Metals

Japan Asia Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Asia Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Asia is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Imperial Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Imperial Metals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Japan Asia and Imperial Metals

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

The idea behind Japan Asia Investment and Imperial Metals 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 Transaction History module to view history of all your transactions and understand their impact on performance.