Correlation Between Central Japan and LB Foster

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

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

Diversification Opportunities for Central Japan and LB Foster

-0.44

Correlation Coefficient

Central Japan  LB Foster

Very good diversification

The 3 months correlation between Central and FSTR is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and Central Japan 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 Central Japan Railway are associated (or correlated) with LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Central Japan i.e., Central Japan and LB Foster go up and down completely randomly.

Pair Corralation between Central Japan and LB Foster

Assuming the 90 days horizon Central Japan Railway is expected to generate 46.48 times more return on investment than LB Foster. However, Central Japan is 46.48 times more volatile than LB Foster. It trades about 0.25 of its potential returns per unit of risk. LB Foster is currently generating about 0.1 per unit of risk. If you would invest  12,000  in Central Japan Railway on September 3, 2024 and sell it today you would lose (9,441) from holding Central Japan Railway or give up 78.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	46.26%
Values	Daily Returns

Central Japan Railway  vs.  LB Foster

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 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.

LB Foster

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Japan and LB Foster

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

The idea behind Central Japan Railway and LB Foster 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.