Correlation Between Rakuten and EBay

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

By analyzing existing cross correlation between Rakuten Inc ADR and eBay Inc, you can compare the effects of market volatilities on Rakuten and EBay 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 Rakuten with a short position of EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rakuten and EBay.

Diversification Opportunities for Rakuten and EBay

0.25

Correlation Coefficient

Rakuten  EBay

Modest diversification

The 3 months correlation between Rakuten and EBay is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Rakuten Inc ADR and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc and Rakuten 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 Rakuten Inc ADR are associated (or correlated) with EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Rakuten i.e., Rakuten and EBay go up and down completely randomly.

Pair Corralation between Rakuten and EBay

Assuming the 90 days horizon Rakuten Inc ADR is expected to under-perform the EBay. In addition to that, Rakuten is 1.68 times more volatile than eBay Inc. It trades about -0.04 of its total potential returns per unit of risk. eBay Inc is currently generating about 0.01 per unit of volatility. If you would invest  6,317  in eBay Inc on September 13, 2024 and sell it today you would earn a total of  0.00  from holding eBay Inc or generate 0.0% return on investment over 90 days.

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

Rakuten Inc ADR  vs.  eBay Inc

Rakuten Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rakuten Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

eBay Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eBay Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, EBay is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rakuten and EBay

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

The idea behind Rakuten Inc ADR and eBay 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.