Correlation Between Peel Mining and Central Japan

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

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

Diversification Opportunities for Peel Mining and Central Japan

-0.61

Correlation Coefficient

Peel Mining  Central Japan

Excellent diversification

The 3 months correlation between Peel and Central is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Peel Mining Limited and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway and Peel Mining 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 Peel Mining Limited are associated (or correlated) with Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Peel Mining i.e., Peel Mining and Central Japan go up and down completely randomly.

Pair Corralation between Peel Mining and Central Japan

Assuming the 90 days horizon Peel Mining Limited is expected to generate 4.7 times more return on investment than Central Japan. However, Peel Mining is 4.7 times more volatile than Central Japan Railway. It trades about 0.05 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.06 per unit of risk. If you would invest  5.30  in Peel Mining Limited on October 5, 2024 and sell it today you would earn a total of  1.55  from holding Peel Mining Limited or generate 29.25% return on investment over 90 days.

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

Peel Mining Limited  vs.  Central Japan Railway

Peel Mining Limited

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Peel Mining Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, Peel Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Peel Mining and Central Japan

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

The idea behind Peel Mining Limited and Central 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.