Correlation Between SBA Communications and Central Japan

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

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

Diversification Opportunities for SBA Communications and Central Japan

0.32

Correlation Coefficient

SBA Communications  Central Japan

Weak diversification

The 3 months correlation between SBA and Central is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding SBA Communications Corp and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway and SBA Communications 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 SBA Communications Corp are associated (or correlated) with Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of SBA Communications i.e., SBA Communications and Central Japan go up and down completely randomly.

Pair Corralation between SBA Communications and Central Japan

Assuming the 90 days trading horizon SBA Communications is expected to generate 3.59 times less return on investment than Central Japan. But when comparing it to its historical volatility, SBA Communications Corp is 1.0 times less risky than Central Japan. It trades about 0.01 of its potential returns per unit of risk. Central Japan Railway is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,850  in Central Japan Railway on April 21, 2025 and sell it today you would earn a total of  71.00  from holding Central Japan Railway or generate 3.84% return on investment over 90 days.

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

SBA Communications Corp  vs.  Central Japan Railway

SBA Communications Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days SBA Communications Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SBA Communications is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Central Japan Railway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Japan Railway are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SBA Communications and Central Japan

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

The idea behind SBA Communications Corp and Central 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.