Correlation Between Central Japan and AEGEAN AIRLINES

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

Diversification Opportunities for Central Japan and AEGEAN AIRLINES

0.42

Correlation Coefficient

Central Japan  AEGEAN AIRLINES

Very weak diversification

The 3 months correlation between Central and AEGEAN is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and AEGEAN AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEGEAN AIRLINES 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 AEGEAN AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEGEAN AIRLINES has no effect on the direction of Central Japan i.e., Central Japan and AEGEAN AIRLINES go up and down completely randomly.

Pair Corralation between Central Japan and AEGEAN AIRLINES

Assuming the 90 days horizon Central Japan Railway is expected to under-perform the AEGEAN AIRLINES. But the stock apears to be less risky and, when comparing its historical volatility, Central Japan Railway is 1.1 times less risky than AEGEAN AIRLINES. The stock trades about -0.18 of its potential returns per unit of risk. The AEGEAN AIRLINES is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,054  in AEGEAN AIRLINES on September 23, 2024 and sell it today you would lose (48.00) from holding AEGEAN AIRLINES or give up 4.55% of portfolio value over 90 days.

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

Central Japan Railway  vs.  AEGEAN AIRLINES

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 fragile 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.

AEGEAN AIRLINES

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Central Japan and AEGEAN AIRLINES

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

The idea behind Central Japan Railway and AEGEAN AIRLINES 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.