Correlation Between Japan Asia and Vulcan Materials

Can any of the company-specific risk be diversified away by investing in both Japan Asia and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials, you can compare the effects of market volatilities on Japan Asia and Vulcan Materials 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 Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Asia and Vulcan Materials.

Diversification Opportunities for Japan Asia and Vulcan Materials

0.64

Correlation Coefficient

Japan Asia  Vulcan Materials

Poor diversification

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

Pair Corralation between Japan Asia and Vulcan Materials

Assuming the 90 days horizon Japan Asia Investment is expected to under-perform the Vulcan Materials. But the stock apears to be less risky and, when comparing its historical volatility, Japan Asia Investment is 1.02 times less risky than Vulcan Materials. The stock trades about -0.06 of its potential returns per unit of risk. The Vulcan Materials is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  25,000  in Vulcan Materials on October 26, 2024 and sell it today you would earn a total of  1,200  from holding Vulcan Materials or generate 4.8% return on investment over 90 days.

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

Japan Asia Investment  vs.  Vulcan Materials

Japan Asia Investment

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Asia Investment are ranked lower than 2 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vulcan Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Vulcan Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Japan Asia and Vulcan Materials

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

The idea behind Japan Asia Investment and Vulcan Materials 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.