Correlation Between Hitachi Construction and Liontown Resources
Can any of the company-specific risk be diversified away by investing in both Hitachi Construction and Liontown Resources 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 Hitachi Construction and Liontown Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hitachi Construction Machinery and Liontown Resources Limited, you can compare the effects of market volatilities on Hitachi Construction and Liontown Resources 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 Hitachi Construction with a short position of Liontown Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi Construction and Liontown Resources.
Diversification Opportunities for Hitachi Construction and Liontown Resources
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Hitachi and Liontown is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Liontown Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Hitachi 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 Hitachi Construction Machinery are associated (or correlated) with Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Liontown Resources go up and down completely randomly.
Pair Corralation between Hitachi Construction and Liontown Resources
Assuming the 90 days horizon Hitachi Construction Machinery is expected to generate 0.66 times more return on investment than Liontown Resources. However, Hitachi Construction Machinery is 1.51 times less risky than Liontown Resources. It trades about 0.15 of its potential returns per unit of risk. Liontown Resources Limited is currently generating about -0.16 per unit of risk. If you would invest 1,980 in Hitachi Construction Machinery on September 2, 2024 and sell it today you would earn a total of 120.00 from holding Hitachi Construction Machinery or generate 6.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Hitachi Construction Machinery vs. Liontown Resources Limited
Performance |
| Timeline |
| Hitachi Construction |
| Liontown Resources |
Hitachi Construction and Liontown Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hitachi Construction and Liontown Resources
The main advantage of trading using opposite Hitachi Construction and Liontown Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction position performs unexpectedly, Liontown Resources 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 Liontown Resources will offset losses from the drop in Liontown Resources' long position.The idea behind Hitachi Construction Machinery and Liontown Resources Limited 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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