Correlation Between Trinity Industries and West Japan

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

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

Diversification Opportunities for Trinity Industries and West Japan

-0.64

Correlation Coefficient

Trinity Industries  West Japan

Excellent diversification

The 3 months correlation between Trinity and West is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Industries and West Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Japan Railway and Trinity Industries 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 Trinity Industries are associated (or correlated) with West Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Japan Railway has no effect on the direction of Trinity Industries i.e., Trinity Industries and West Japan go up and down completely randomly.

Pair Corralation between Trinity Industries and West Japan

Considering the 90-day investment horizon Trinity Industries is expected to generate 1.96 times more return on investment than West Japan. However, Trinity Industries is 1.96 times more volatile than West Japan Railway. It trades about 0.14 of its potential returns per unit of risk. West Japan Railway is currently generating about -0.01 per unit of risk. If you would invest  3,189  in Trinity Industries on September 1, 2024 and sell it today you would earn a total of  581.00  from holding Trinity Industries or generate 18.22% return on investment over 90 days.

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

Trinity Industries  vs.  West Japan Railway

Trinity Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Trinity Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

West Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Trinity Industries and West Japan

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

The idea behind Trinity Industries and West 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.