Correlation Between Japan Real and Wal Mart

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

Diversification Opportunities for Japan Real and Wal Mart

0.03

Correlation Coefficient

Japan Real  Wal Mart

Significant diversification

The 3 months correlation between Japan and Wal is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Japan Real Estate and Wal Mart de Mxico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de 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 Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Japan Real i.e., Japan Real and Wal Mart go up and down completely randomly.

Pair Corralation between Japan Real and Wal Mart

Assuming the 90 days horizon Japan Real Estate is expected to generate 0.48 times more return on investment than Wal Mart. However, Japan Real Estate is 2.08 times less risky than Wal Mart. It trades about 0.09 of its potential returns per unit of risk. Wal Mart de Mxico is currently generating about -0.01 per unit of risk. If you would invest  63,000  in Japan Real Estate on December 27, 2024 and sell it today you would earn a total of  4,500  from holding Japan Real Estate or generate 7.14% return on investment over 90 days.

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

Japan Real Estate  vs.  Wal Mart de Mxico

Japan Real Estate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Real Estate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Japan Real may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Wal Mart de

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Japan Real and Wal Mart

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

The idea behind Japan Real Estate and Wal Mart de Mxico 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.