Correlation Between Japan Exchange and London Stock

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

Diversification Opportunities for Japan Exchange and London Stock

-0.13

Correlation Coefficient

Japan Exchange  London Stock

Good diversification

The 3 months correlation between Japan and London is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Japan Exchange Group and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange 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 London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Japan Exchange i.e., Japan Exchange and London Stock go up and down completely randomly.

Pair Corralation between Japan Exchange and London Stock

Assuming the 90 days horizon Japan Exchange Group is expected to generate 1.2 times more return on investment than London Stock. However, Japan Exchange is 1.2 times more volatile than London Stock Exchange. It trades about 0.07 of its potential returns per unit of risk. London Stock Exchange is currently generating about 0.08 per unit of risk. If you would invest  690.00  in Japan Exchange Group on September 20, 2024 and sell it today you would earn a total of  455.00  from holding Japan Exchange Group or generate 65.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Japan Exchange Group  vs.  London Stock Exchange

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 recent stock price disturbance, may contribute to short-term losses for the investors.

London Stock Exchange

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, London Stock is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Japan Exchange and London Stock

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

The idea behind Japan Exchange Group and London Stock Exchange 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.