Correlation Between Japan Steel and Gap

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

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

Diversification Opportunities for Japan Steel and Gap

-0.38

Correlation Coefficient

Japan Steel  Gap

Very good diversification

The 3 months correlation between Japan and Gap is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and The Gap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap and Japan Steel 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 The Japan Steel are associated (or correlated) with Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap has no effect on the direction of Japan Steel i.e., Japan Steel and Gap go up and down completely randomly.

Pair Corralation between Japan Steel and Gap

Assuming the 90 days horizon The Japan Steel is expected to generate 0.7 times more return on investment than Gap. However, The Japan Steel is 1.44 times less risky than Gap. It trades about 0.17 of its potential returns per unit of risk. The Gap is currently generating about 0.03 per unit of risk. If you would invest  3,680  in The Japan Steel on April 23, 2025 and sell it today you would earn a total of  1,200  from holding The Japan Steel or generate 32.61% return on investment over 90 days.

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

The Japan Steel  vs.  The Gap

Japan Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Japan Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Gap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Gap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Gap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Japan Steel and Gap

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

The idea behind The Japan Steel and The Gap 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.