Correlation Between MTR Corp and West Japan

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

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

Diversification Opportunities for MTR Corp and West Japan

0.21

Correlation Coefficient

MTR Corp  West Japan

Modest diversification

The 3 months correlation between MTR and West is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding MTR Corp and West Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Japan Railway and MTR Corp 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 Corp are associated (or correlated) with West Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Japan Railway has no effect on the direction of MTR Corp i.e., MTR Corp and West Japan go up and down completely randomly.

Pair Corralation between MTR Corp and West Japan

If you would invest  1,759  in West Japan Railway on December 27, 2024 and sell it today you would earn a total of  242.00  from holding West Japan Railway or generate 13.76% return on investment over 90 days.

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

MTR Corp  vs.  West Japan Railway

MTR Corp

Risk-Adjusted Performance

Very Weak

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

West Japan Railway

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in West Japan Railway are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, West Japan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTR Corp and West Japan

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

The idea behind MTR Corp and West 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.