Correlation Between Rakuten and Monotaro

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

Diversification Opportunities for Rakuten and Monotaro

0.07

Correlation Coefficient

Rakuten  Monotaro

Significant diversification

The 3 months correlation between Rakuten and Monotaro is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Rakuten Inc ADR and Monotaro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monotaro 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 Monotaro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monotaro has no effect on the direction of Rakuten i.e., Rakuten and Monotaro go up and down completely randomly.

Pair Corralation between Rakuten and Monotaro

Assuming the 90 days horizon Rakuten Inc ADR is expected to under-perform the Monotaro. But the pink sheet apears to be less risky and, when comparing its historical volatility, Rakuten Inc ADR is 1.02 times less risky than Monotaro. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Monotaro Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,551  in Monotaro Co on September 3, 2024 and sell it today you would earn a total of  226.00  from holding Monotaro Co or generate 14.57% return on investment over 90 days.

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

Rakuten Inc ADR  vs.  Monotaro Co

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Monotaro

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monotaro Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Monotaro showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rakuten and Monotaro

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

The idea behind Rakuten Inc ADR and Monotaro Co 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.