Correlation Between MTR and East Japan

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

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

Diversification Opportunities for MTR and East Japan

0.05

Correlation Coefficient

MTR  East Japan

Significant diversification

The 3 months correlation between MTR and East is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding MTR Limited and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway and MTR 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 MTR Limited are associated (or correlated) with East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of MTR i.e., MTR and East Japan go up and down completely randomly.

Pair Corralation between MTR and East Japan

Assuming the 90 days horizon MTR Limited is expected to generate 0.73 times more return on investment than East Japan. However, MTR Limited is 1.38 times less risky than East Japan. It trades about 0.06 of its potential returns per unit of risk. East Japan Railway is currently generating about -0.03 per unit of risk. If you would invest  326.00  in MTR Limited on September 23, 2024 and sell it today you would earn a total of  6.00  from holding MTR Limited or generate 1.84% return on investment over 90 days.

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

MTR Limited  vs.  East Japan Railway

MTR Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MTR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

East Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MTR and East Japan

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

The idea behind MTR Limited and East Japan Railway 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.