Correlation Between Japan Exchange and MSCI

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

Diversification Opportunities for Japan Exchange and MSCI

0.6

Correlation Coefficient

Japan Exchange  MSCI

Poor diversification

The 3 months correlation between Japan and MSCI is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Japan Exchange Group and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of Japan Exchange i.e., Japan Exchange and MSCI go up and down completely randomly.

Pair Corralation between Japan Exchange and MSCI

Assuming the 90 days horizon Japan Exchange Group is expected to generate 3.9 times more return on investment than MSCI. However, Japan Exchange is 3.9 times more volatile than MSCI Inc. It trades about -0.01 of its potential returns per unit of risk. MSCI Inc is currently generating about -0.05 per unit of risk. If you would invest  1,275  in Japan Exchange Group on December 18, 2024 and sell it today you would lose (141.00) from holding Japan Exchange Group or give up 11.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.61%
Values	Daily Returns

Japan Exchange Group  vs.  MSCI Inc

Japan Exchange Group

Risk-Adjusted Performance

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.

MSCI Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days MSCI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, MSCI is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Japan Exchange and MSCI

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

The idea behind Japan Exchange Group and MSCI Inc 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.