Correlation Between Japanese Small and Rmb Japan

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

By analyzing existing cross correlation between Japanese Small Pany and Rmb Japan Fund, you can compare the effects of market volatilities on Japanese Small and Rmb 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 Japanese Small with a short position of Rmb Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japanese Small and Rmb Japan.

Diversification Opportunities for Japanese Small and Rmb Japan

0.93

Correlation Coefficient

Japanese Small  Rmb Japan

Almost no diversification

The 3 months correlation between Japanese and Rmb is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Japanese Small Pany and Rmb Japan Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rmb Japan Fund and Japanese Small 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 Japanese Small Pany are associated (or correlated) with Rmb Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rmb Japan Fund has no effect on the direction of Japanese Small i.e., Japanese Small and Rmb Japan go up and down completely randomly.

Pair Corralation between Japanese Small and Rmb Japan

Assuming the 90 days horizon Japanese Small is expected to generate 1.03 times less return on investment than Rmb Japan. But when comparing it to its historical volatility, Japanese Small Pany is 1.1 times less risky than Rmb Japan. It trades about 0.05 of its potential returns per unit of risk. Rmb Japan Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  831.00  in Rmb Japan Fund on September 3, 2024 and sell it today you would earn a total of  229.00  from holding Rmb Japan Fund or generate 27.56% return on investment over 90 days.

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

Japanese Small Pany  vs.  Rmb Japan Fund

Japanese Small Pany

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japanese Small Pany has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Japanese Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rmb Japan Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rmb Japan Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Rmb Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Japanese Small and Rmb Japan

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

The idea behind Japanese Small Pany and Rmb Japan Fund 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.