Correlation Between LEGAL GENERAL and Tokyu Construction

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

By analyzing existing cross correlation between LEGAL GENERAL and Tokyu Construction Co, you can compare the effects of market volatilities on LEGAL GENERAL and Tokyu Construction 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 LEGAL GENERAL with a short position of Tokyu Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of LEGAL GENERAL and Tokyu Construction.

Diversification Opportunities for LEGAL GENERAL and Tokyu Construction

0.56

Correlation Coefficient

LEGAL GENERAL  Tokyu Construction

Very weak diversification

The 3 months correlation between LEGAL and Tokyu is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding LEGAL GENERAL and Tokyu Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyu Construction and LEGAL GENERAL 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 LEGAL GENERAL are associated (or correlated) with Tokyu Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyu Construction has no effect on the direction of LEGAL GENERAL i.e., LEGAL GENERAL and Tokyu Construction go up and down completely randomly.

Pair Corralation between LEGAL GENERAL and Tokyu Construction

Assuming the 90 days trading horizon LEGAL GENERAL is expected to generate 3.83 times less return on investment than Tokyu Construction. In addition to that, LEGAL GENERAL is 1.42 times more volatile than Tokyu Construction Co. It trades about 0.03 of its total potential returns per unit of risk. Tokyu Construction Co is currently generating about 0.14 per unit of volatility. If you would invest  400.00  in Tokyu Construction Co on October 25, 2024 and sell it today you would earn a total of  30.00  from holding Tokyu Construction Co or generate 7.5% return on investment over 90 days.

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

LEGAL GENERAL  vs.  Tokyu Construction Co

LEGAL GENERAL

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LEGAL GENERAL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, LEGAL GENERAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Tokyu Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyu Construction Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyu Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with LEGAL GENERAL and Tokyu Construction

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

The idea behind LEGAL GENERAL and Tokyu Construction Co 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.