Correlation Between Japan Exchange and Intercontinental

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

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

Diversification Opportunities for Japan Exchange and Intercontinental

0.21

Correlation Coefficient

Japan Exchange  Intercontinental

Modest diversification

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

Pair Corralation between Japan Exchange and Intercontinental

Assuming the 90 days horizon Japan Exchange Group is expected to generate 3.13 times more return on investment than Intercontinental. However, Japan Exchange is 3.13 times more volatile than Intercontinental Exchange. It trades about 0.01 of its potential returns per unit of risk. Intercontinental Exchange is currently generating about -0.06 per unit of risk. If you would invest  1,224  in Japan Exchange Group on October 27, 2024 and sell it today you would lose (39.00) from holding Japan Exchange Group or give up 3.19% of portfolio value over 90 days.

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

Japan Exchange Group  vs.  Intercontinental Exchange

Japan Exchange Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Intercontinental Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intercontinental Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Intercontinental is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Japan Exchange and Intercontinental

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

The idea behind Japan Exchange Group and Intercontinental Exchange 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.