Correlation Between AIA Group and Japan Exchange

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

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

Diversification Opportunities for AIA Group and Japan Exchange

0.59

Correlation Coefficient

AIA Group  Japan Exchange

Very weak diversification

The 3 months correlation between AIA and Japan is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding AIA Group Ltd and Japan Exchange Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Exchange Group and AIA Group 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 AIA Group Ltd are associated (or correlated) with Japan Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Exchange Group has no effect on the direction of AIA Group i.e., AIA Group and Japan Exchange go up and down completely randomly.

Pair Corralation between AIA Group and Japan Exchange

Assuming the 90 days horizon AIA Group Ltd is expected to generate 1.38 times more return on investment than Japan Exchange. However, AIA Group is 1.38 times more volatile than Japan Exchange Group. It trades about -0.02 of its potential returns per unit of risk. Japan Exchange Group is currently generating about -0.05 per unit of risk. If you would invest  2,974  in AIA Group Ltd on September 20, 2024 and sell it today you would lose (177.00) from holding AIA Group Ltd or give up 5.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

AIA Group Ltd  vs.  Japan Exchange Group

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Japan Exchange Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Exchange Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Japan Exchange is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AIA Group and Japan Exchange

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

The idea behind AIA Group Ltd and Japan Exchange Group 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.