Correlation Between East Japan and Trinity Industries

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

Diversification Opportunities for East Japan and Trinity Industries

-0.54

Correlation Coefficient

East Japan  Trinity Industries

Excellent diversification

The 3 months correlation between East and Trinity is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding East 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 East 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 East 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 East Japan i.e., East Japan and Trinity Industries go up and down completely randomly.

Pair Corralation between East Japan and Trinity Industries

Assuming the 90 days horizon East Japan is expected to generate 6.67 times less return on investment than Trinity Industries. But when comparing it to its historical volatility, East Japan Railway is 1.5 times less risky than Trinity Industries. It trades about 0.03 of its potential returns per unit of risk. Trinity Industries is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,189  in Trinity Industries on September 3, 2024 and sell it today you would earn a total of  578.00  from holding Trinity Industries or generate 18.12% return on investment over 90 days.

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

East Japan Railway  vs.  Trinity Industries

East Japan Railway

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in East Japan Railway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, East Japan is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 East Japan and Trinity Industries

The main advantage of trading using opposite East Japan and Trinity Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East 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 East 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..