Correlation Between MTRLimited and East Japan

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

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

Diversification Opportunities for MTRLimited and East Japan

0.09

Correlation Coefficient

MTRLimited  East Japan

Significant diversification

The 3 months correlation between MTRLimited and East is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding MTR Limited and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway and MTRLimited 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 MTR Limited are associated (or correlated) with East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of MTRLimited i.e., MTRLimited and East Japan go up and down completely randomly.

Pair Corralation between MTRLimited and East Japan

Assuming the 90 days horizon MTR Limited is expected to generate 1.04 times more return on investment than East Japan. However, MTRLimited is 1.04 times more volatile than East Japan Railway. It trades about 0.12 of its potential returns per unit of risk. East Japan Railway is currently generating about 0.06 per unit of risk. If you would invest  251.00  in MTR Limited on October 2, 2024 and sell it today you would earn a total of  81.00  from holding MTR Limited or generate 32.27% return on investment over 90 days.

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

MTR Limited  vs.  East Japan Railway

MTR Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

East Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with MTRLimited and East Japan

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

The idea behind MTR Limited and East Japan Railway 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.