Correlation Between Iron Road and Canon

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

By analyzing existing cross correlation between Iron Road Limited and Canon Inc, you can compare the effects of market volatilities on Iron Road and Canon 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 Iron Road with a short position of Canon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Canon.

Diversification Opportunities for Iron Road and Canon

-0.58

Correlation Coefficient

Iron Road  Canon

Excellent diversification

The 3 months correlation between Iron and Canon is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road Limited and Canon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canon Inc and Iron Road 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 Iron Road Limited are associated (or correlated) with Canon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canon Inc has no effect on the direction of Iron Road i.e., Iron Road and Canon go up and down completely randomly.

Pair Corralation between Iron Road and Canon

Assuming the 90 days horizon Iron Road Limited is expected to generate 5.47 times more return on investment than Canon. However, Iron Road is 5.47 times more volatile than Canon Inc. It trades about 0.21 of its potential returns per unit of risk. Canon Inc is currently generating about -0.38 per unit of risk. If you would invest  3.46  in Iron Road Limited on February 4, 2024 and sell it today you would earn a total of  1.57  from holding Iron Road Limited or generate 45.38% return on investment over 90 days.

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

Iron Road Limited  vs.  Canon Inc

Iron Road Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iron Road Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Iron Road reported solid returns over the last few months and may actually be approaching a breakup point.

Canon Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Iron Road and Canon

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

The idea behind Iron Road Limited and Canon Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.