Correlation Between MTRLimited and Central Japan

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

Diversification Opportunities for MTRLimited and Central Japan

0.18

Correlation Coefficient

MTRLimited  Central Japan

Average diversification

The 3 months correlation between MTRLimited and Central is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding MTR Limited and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of MTRLimited i.e., MTRLimited and Central Japan go up and down completely randomly.

Pair Corralation between MTRLimited and Central Japan

Assuming the 90 days horizon MTR Limited is expected to generate 1.22 times more return on investment than Central Japan. However, MTRLimited is 1.22 times more volatile than Central Japan Railway. It trades about -0.07 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.16 per unit of risk. If you would invest  350.00  in MTR Limited on October 5, 2024 and sell it today you would lose (22.00) from holding MTR Limited or give up 6.29% of portfolio value over 90 days.

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

MTR Limited  vs.  Central 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.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Japan Railway 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.

Pair Trading with MTRLimited and Central Japan

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

The idea behind MTR Limited and Central 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.