Correlation Between Adecco and Central Japan

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

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

Diversification Opportunities for Adecco and Central Japan

0.71

Correlation Coefficient

Adecco  Central Japan

Poor diversification

The 3 months correlation between Adecco and Central is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Adecco Group 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 Adecco 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 Adecco Group 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 Adecco i.e., Adecco and Central Japan go up and down completely randomly.

Pair Corralation between Adecco and Central Japan

Assuming the 90 days horizon Adecco Group is expected to under-perform the Central Japan. In addition to that, Adecco is 1.56 times more volatile than Central Japan Railway. It trades about -0.19 of its total potential returns per unit of risk. Central Japan Railway is currently generating about -0.13 per unit of volatility. If you would invest  1,139  in Central Japan Railway on September 3, 2024 and sell it today you would lose (114.00) from holding Central Japan Railway or give up 10.01% of portfolio value over 90 days.

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

Adecco Group  vs.  Central Japan Railway

Adecco Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adecco Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating 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.

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. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Adecco and Central Japan

The main advantage of trading using opposite Adecco and Central Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adecco 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 Adecco Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.