Correlation Between Service International and Medirom Healthcare

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

By analyzing existing cross correlation between Service International and Medirom Healthcare Technologies, you can compare the effects of market volatilities on Service International and Medirom Healthcare 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 Service International with a short position of Medirom Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Service International and Medirom Healthcare.

Diversification Opportunities for Service International and Medirom Healthcare

-0.2

Correlation Coefficient

Service International  Medirom Healthcare

Good diversification

The 3 months correlation between Service and Medirom is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Service International and Medirom Healthcare Technologie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medirom Healthcare and Service International 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 Service International are associated (or correlated) with Medirom Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medirom Healthcare has no effect on the direction of Service International i.e., Service International and Medirom Healthcare go up and down completely randomly.

Pair Corralation between Service International and Medirom Healthcare

Considering the 90-day investment horizon Service International is expected to generate 0.07 times more return on investment than Medirom Healthcare. However, Service International is 14.64 times less risky than Medirom Healthcare. It trades about -0.47 of its potential returns per unit of risk. Medirom Healthcare Technologies is currently generating about -0.3 per unit of risk. If you would invest  8,798  in Service International on September 27, 2024 and sell it today you would lose (716.00) from holding Service International or give up 8.14% of portfolio value over 90 days.

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

Service International  vs.  Medirom Healthcare Technologie

Service International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Service International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Service International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Medirom Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medirom Healthcare Technologies 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 very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Service International and Medirom Healthcare

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

The idea behind Service International and Medirom Healthcare Technologies 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.