Correlation Between Japan Exchange and AIA Group

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

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

Diversification Opportunities for Japan Exchange and AIA Group

0.62

Correlation Coefficient

Japan Exchange  AIA Group

Poor diversification

The 3 months correlation between Japan and AIA is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Japan Exchange Group and AIA Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group and Japan Exchange 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 Exchange Group are associated (or correlated) with AIA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group has no effect on the direction of Japan Exchange i.e., Japan Exchange and AIA Group go up and down completely randomly.

Pair Corralation between Japan Exchange and AIA Group

Assuming the 90 days horizon Japan Exchange Group is expected to under-perform the AIA Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Japan Exchange Group is 1.38 times less risky than AIA Group. The pink sheet trades about -0.05 of its potential returns per unit of risk. The AIA Group Ltd is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,974  in AIA Group Ltd on September 20, 2024 and sell it today you would lose (177.00) from holding AIA Group Ltd or give up 5.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Japan Exchange Group  vs.  AIA Group Ltd

Japan Exchange Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Exchange Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Japan Exchange is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIA Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, AIA Group is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Japan Exchange and AIA Group

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

The idea behind Japan Exchange Group and AIA Group Ltd 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.