Correlation Between JAPAN AIRLINES and Hartford Financial

Can any of the company-specific risk be diversified away by investing in both JAPAN AIRLINES and Hartford Financial 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 JAPAN AIRLINES and Hartford Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JAPAN AIRLINES and The Hartford Financial, you can compare the effects of market volatilities on JAPAN AIRLINES and Hartford Financial 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 JAPAN AIRLINES with a short position of Hartford Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN AIRLINES and Hartford Financial.

Diversification Opportunities for JAPAN AIRLINES and Hartford Financial

0.09

Correlation Coefficient

JAPAN AIRLINES  Hartford Financial

Significant diversification

The 3 months correlation between JAPAN and Hartford is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and The Hartford Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Hartford Financial and JAPAN AIRLINES 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 JAPAN AIRLINES are associated (or correlated) with Hartford Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Hartford Financial has no effect on the direction of JAPAN AIRLINES i.e., JAPAN AIRLINES and Hartford Financial go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and Hartford Financial

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to under-perform the Hartford Financial. But the stock apears to be less risky and, when comparing its historical volatility, JAPAN AIRLINES is 1.31 times less risky than Hartford Financial. The stock trades about -0.02 of its potential returns per unit of risk. The The Hartford Financial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,354  in The Hartford Financial on September 25, 2024 and sell it today you would earn a total of  146.00  from holding The Hartford Financial or generate 1.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

JAPAN AIRLINES  vs.  The Hartford Financial

JAPAN AIRLINES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

The Hartford Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Hartford Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hartford Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with JAPAN AIRLINES and Hartford Financial

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

The idea behind JAPAN AIRLINES and The Hartford Financial 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.