Correlation Between Japan Real and Xiaomi

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

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

Diversification Opportunities for Japan Real and Xiaomi

-0.85

Correlation Coefficient

Japan Real  Xiaomi

Pay attention - limited upside

The 3 months correlation between Japan and Xiaomi is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Japan Real Estate and Xiaomi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi and Japan Real 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 Real Estate are associated (or correlated) with Xiaomi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi has no effect on the direction of Japan Real i.e., Japan Real and Xiaomi go up and down completely randomly.

Pair Corralation between Japan Real and Xiaomi

Assuming the 90 days horizon Japan Real Estate is expected to under-perform the Xiaomi. But the stock apears to be less risky and, when comparing its historical volatility, Japan Real Estate is 3.11 times less risky than Xiaomi. The stock trades about -0.03 of its potential returns per unit of risk. The Xiaomi is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  222.00  in Xiaomi on August 31, 2024 and sell it today you would earn a total of  115.00  from holding Xiaomi or generate 51.8% return on investment over 90 days.

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

Japan Real Estate  vs.  Xiaomi

Japan Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Xiaomi

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xiaomi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Real and Xiaomi

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

The idea behind Japan Real Estate and Xiaomi 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.