Correlation Between Central Japan and Trinity Industries

Can any of the company-specific risk be diversified away by investing in both Central Japan and Trinity Industries 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 Trinity Industries 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 Trinity Industries, you can compare the effects of market volatilities on Central Japan and Trinity Industries 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 Trinity Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Japan and Trinity Industries.

Diversification Opportunities for Central Japan and Trinity Industries

-0.23

Correlation Coefficient

Central Japan  Trinity Industries

Very good diversification

The 3 months correlation between Central and Trinity is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and Trinity Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Industries 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 Trinity Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Industries has no effect on the direction of Central Japan i.e., Central Japan and Trinity Industries go up and down completely randomly.

Pair Corralation between Central Japan and Trinity Industries

If you would invest  3,189  in Trinity Industries on September 1, 2024 and sell it today you would earn a total of  581.00  from holding Trinity Industries or generate 18.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Central Japan Railway  vs.  Trinity Industries

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.

Trinity Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Trinity Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Japan and Trinity Industries

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

The idea behind Central Japan Railway and Trinity Industries 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.