Correlation Between Freightcar America and West Japan

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

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

Diversification Opportunities for Freightcar America and West Japan

-0.78

Correlation Coefficient

Freightcar America  West Japan

Pay attention - limited upside

The 3 months correlation between Freightcar and West is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Freightcar America 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 Freightcar America 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 Freightcar America 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 Freightcar America i.e., Freightcar America and West Japan go up and down completely randomly.

Pair Corralation between Freightcar America and West Japan

Given the investment horizon of 90 days Freightcar America is expected to under-perform the West Japan. In addition to that, Freightcar America is 3.79 times more volatile than West Japan Railway. It trades about -0.12 of its total potential returns per unit of risk. West Japan Railway is currently generating about 0.16 per unit of volatility. If you would invest  1,751  in West Japan Railway on December 30, 2024 and sell it today you would earn a total of  248.00  from holding West Japan Railway or generate 14.16% return on investment over 90 days.

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

Freightcar America  vs.  West Japan Railway

Freightcar America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freightcar America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 Freightcar America and West Japan

The main advantage of trading using opposite Freightcar America and West Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freightcar America 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 Freightcar America 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.