Correlation Between Central Japan and MTRLimited

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

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

Diversification Opportunities for Central Japan and MTRLimited

0.34

Correlation Coefficient

Central Japan  MTRLimited

Weak diversification

The 3 months correlation between Central and MTRLimited is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and MTR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Limited and Central 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 Central Japan Railway are associated (or correlated) with MTRLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Limited has no effect on the direction of Central Japan i.e., Central Japan and MTRLimited go up and down completely randomly.

Pair Corralation between Central Japan and MTRLimited

Assuming the 90 days horizon Central Japan Railway is expected to generate 1.07 times more return on investment than MTRLimited. However, Central Japan is 1.07 times more volatile than MTR Limited. It trades about 0.08 of its potential returns per unit of risk. MTR Limited is currently generating about 0.03 per unit of risk. If you would invest  1,774  in Central Japan Railway on April 24, 2025 and sell it today you would earn a total of  148.00  from holding Central Japan Railway or generate 8.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Central Japan Railway  vs.  MTR Limited

Central Japan Railway

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central Japan Railway are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Central Japan may actually be approaching a critical reversion point that can send shares even higher in August 2025.

MTR Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MTRLimited is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Central Japan and MTRLimited

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

The idea behind Central Japan Railway and MTR Limited 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.