Correlation Between Canadian National and Central Japan

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

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

Diversification Opportunities for Canadian National and Central Japan

0.63

Correlation Coefficient

Canadian National  Central Japan

Poor diversification

The 3 months correlation between Canadian and Central is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway 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 Canadian National 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 Canadian National Railway 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 Canadian National i.e., Canadian National and Central Japan go up and down completely randomly.

Pair Corralation between Canadian National and Central Japan

Assuming the 90 days horizon Canadian National Railway is expected to generate 0.95 times more return on investment than Central Japan. However, Canadian National Railway is 1.05 times less risky than Central Japan. It trades about -0.09 of its potential returns per unit of risk. Central Japan Railway is currently generating about -0.19 per unit of risk. If you would invest  10,503  in Canadian National Railway on September 22, 2024 and sell it today you would lose (783.00) from holding Canadian National Railway or give up 7.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Canadian National Railway  vs.  Central Japan Railway

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Canadian National and Central Japan

The main advantage of trading using opposite Canadian National and Central Japan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National 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 Canadian National Railway 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.