Correlation Between SP Global and Japan Exchange

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

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

Diversification Opportunities for SP Global and Japan Exchange

-0.64

Correlation Coefficient

SP Global  Japan Exchange

Excellent diversification

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

Pair Corralation between SP Global and Japan Exchange

Given the investment horizon of 90 days SP Global is expected to generate 2.32 times less return on investment than Japan Exchange. But when comparing it to its historical volatility, SP Global is 1.43 times less risky than Japan Exchange. It trades about 0.04 of its potential returns per unit of risk. Japan Exchange Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,386  in Japan Exchange Group on February 1, 2024 and sell it today you would earn a total of  934.00  from holding Japan Exchange Group or generate 67.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	86.23%
Values	Daily Returns

SP Global  vs.  Japan Exchange Group

SP Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Japan Exchange Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Exchange Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Japan Exchange may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with SP Global and Japan Exchange

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

The idea behind SP Global and Japan Exchange Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.