Correlation Between Hanshin Construction and Solux

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Can any of the company-specific risk be diversified away by investing in both Hanshin Construction and Solux 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 Hanshin Construction and Solux into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hanshin Construction Co and Solux Co, you can compare the effects of market volatilities on Hanshin Construction and Solux 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 Hanshin Construction with a short position of Solux. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanshin Construction and Solux.

Diversification Opportunities for Hanshin Construction and Solux

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Hanshin and Solux is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Hanshin Construction Co and Solux Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solux and Hanshin Construction 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 Hanshin Construction Co are associated (or correlated) with Solux. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solux has no effect on the direction of Hanshin Construction i.e., Hanshin Construction and Solux go up and down completely randomly.

Pair Corralation between Hanshin Construction and Solux

Assuming the 90 days trading horizon Hanshin Construction Co is expected to under-perform the Solux. But the stock apears to be less risky and, when comparing its historical volatility, Hanshin Construction Co is 1.6 times less risky than Solux. The stock trades about -0.1 of its potential returns per unit of risk. The Solux Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  819,000  in Solux Co on September 19, 2024 and sell it today you would earn a total of  44,000  from holding Solux Co or generate 5.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Hanshin Construction Co  vs.  Solux Co

 Performance 
       Timeline  
Hanshin Construction 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Hanshin Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hanshin Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Solux 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Solux Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solux may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hanshin Construction and Solux Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hanshin Construction and Solux

The main advantage of trading using opposite Hanshin Construction and Solux positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hanshin Construction position performs unexpectedly, Solux 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 Solux will offset losses from the drop in Solux's long position.
The idea behind Hanshin Construction Co and Solux Co 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.
Check out your portfolio center.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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