Correlation Between Japan Real and National Grid

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

Diversification Opportunities for Japan Real and National Grid

0.73

Correlation Coefficient

Japan Real  National Grid

Poor diversification

The 3 months correlation between Japan and National is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Japan Real Estate and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid plc 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of Japan Real i.e., Japan Real and National Grid go up and down completely randomly.

Pair Corralation between Japan Real and National Grid

Assuming the 90 days horizon Japan Real Estate is expected to under-perform the National Grid. But the stock apears to be less risky and, when comparing its historical volatility, Japan Real Estate is 1.47 times less risky than National Grid. The stock trades about -0.03 of its potential returns per unit of risk. The National Grid plc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,782  in National Grid plc on September 25, 2024 and sell it today you would earn a total of  618.00  from holding National Grid plc or generate 12.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.41%
Values	Daily Returns

Japan Real Estate  vs.  National Grid plc

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

National Grid plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Japan Real and National Grid

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

The idea behind Japan Real Estate and National Grid plc 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.