Correlation Between Intercontinental and Japan Exchange

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

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

Diversification Opportunities for Intercontinental and Japan Exchange

0.67

Correlation Coefficient

Intercontinental  Japan Exchange

Poor diversification

The 3 months correlation between Intercontinental and Japan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Intercontinental Exchange 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 Intercontinental 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 Intercontinental Exchange 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 Intercontinental i.e., Intercontinental and Japan Exchange go up and down completely randomly.

Pair Corralation between Intercontinental and Japan Exchange

Considering the 90-day investment horizon Intercontinental Exchange is expected to generate 0.34 times more return on investment than Japan Exchange. However, Intercontinental Exchange is 2.93 times less risky than Japan Exchange. It trades about -0.26 of its potential returns per unit of risk. Japan Exchange Group is currently generating about -0.24 per unit of risk. If you would invest  13,743  in Intercontinental Exchange on January 28, 2024 and sell it today you would lose (573.00) from holding Intercontinental Exchange or give up 4.17% of portfolio value over 90 days.

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

Intercontinental Exchange  vs.  Japan Exchange Group

Intercontinental Exchange

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Intercontinental Exchange are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Intercontinental is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Japan Exchange Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Exchange Group are ranked lower than 5 (%) 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 May 2024.

Pair Trading with Intercontinental and Japan Exchange

The main advantage of trading using opposite Intercontinental and Japan Exchange positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intercontinental 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 Intercontinental Exchange 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.