Correlation Between Zai Lab and Central Japan

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

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

Diversification Opportunities for Zai Lab and Central Japan

0.0

Correlation Coefficient

Zai Lab  Central Japan

Pay attention - limited upside

The 3 months correlation between Zai and Central is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Zai Lab 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 Zai Lab 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 Zai Lab 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 Zai Lab i.e., Zai Lab and Central Japan go up and down completely randomly.

Pair Corralation between Zai Lab and Central Japan

If you would invest  2,722  in Zai Lab on December 26, 2024 and sell it today you would earn a total of  818.00  from holding Zai Lab or generate 30.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Zai Lab  vs.  Central Japan Railway

Zai Lab

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Central Japan Railway

Risk-Adjusted Performance

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 nearly stable basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Zai Lab and Central Japan

The main advantage of trading using opposite Zai Lab and Central Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zai Lab 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 Zai Lab 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.