Correlation Between Basic Materials and Japan 2x

Can any of the company-specific risk be diversified away by investing in both Basic Materials and Japan 2x 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 Basic Materials and Japan 2x into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Basic Materials Fund and Japan 2x Strategy, you can compare the effects of market volatilities on Basic Materials and Japan 2x 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 Basic Materials with a short position of Japan 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Japan 2x.

Diversification Opportunities for Basic Materials and Japan 2x

0.76

Correlation Coefficient

Basic Materials  Japan 2x

Poor diversification

The 3 months correlation between Basic and Japan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Japan 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan 2x Strategy and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Japan 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan 2x Strategy has no effect on the direction of Basic Materials i.e., Basic Materials and Japan 2x go up and down completely randomly.

Pair Corralation between Basic Materials and Japan 2x

Assuming the 90 days horizon Basic Materials is expected to generate 1.5 times less return on investment than Japan 2x. But when comparing it to its historical volatility, Basic Materials Fund is 2.49 times less risky than Japan 2x. It trades about 0.14 of its potential returns per unit of risk. Japan 2x Strategy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  13,148  in Japan 2x Strategy on May 11, 2025 and sell it today you would earn a total of  1,486  from holding Japan 2x Strategy or generate 11.3% return on investment over 90 days.

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

Basic Materials Fund  vs.  Japan 2x Strategy

Basic Materials

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Basic Materials may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Japan 2x Strategy

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Japan 2x Strategy are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Japan 2x showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Basic Materials and Japan 2x

The main advantage of trading using opposite Basic Materials and Japan 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Japan 2x 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 2x will offset losses from the drop in Japan 2x's long position.

The idea behind Basic Materials Fund and Japan 2x Strategy 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.