Correlation Between East Japan and Canadian National

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

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

Diversification Opportunities for East Japan and Canadian National

-0.24

Correlation Coefficient

East Japan  Canadian National

Very good diversification

The 3 months correlation between East and Canadian is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding East Japan Railway and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway and East Japan 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 East Japan Railway are associated (or correlated) with Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of East Japan i.e., East Japan and Canadian National go up and down completely randomly.

Pair Corralation between East Japan and Canadian National

Assuming the 90 days horizon East Japan Railway is expected to under-perform the Canadian National. But the stock apears to be less risky and, when comparing its historical volatility, East Japan Railway is 1.27 times less risky than Canadian National. The stock trades about -0.01 of its potential returns per unit of risk. The Canadian National Railway is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8,871  in Canadian National Railway on March 22, 2025 and sell it today you would lose (47.00) from holding Canadian National Railway or give up 0.53% of portfolio value over 90 days.

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

East Japan Railway  vs.  Canadian National Railway

East Japan Railway

Risk-Adjusted Performance

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 nearly stable basic indicators, East Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian National is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with East Japan and Canadian National

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

The idea behind East Japan Railway and Canadian National 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.