Correlation Between Hitachi Construction and North American
Can any of the company-specific risk be diversified away by investing in both Hitachi Construction and North American 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 North American 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 North American Construction, you can compare the effects of market volatilities on Hitachi Construction and North American 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 North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi Construction and North American.
Diversification Opportunities for Hitachi Construction and North American
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Hitachi and North is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and North American go up and down completely randomly.
Pair Corralation between Hitachi Construction and North American
Assuming the 90 days horizon Hitachi Construction is expected to generate 2.3 times less return on investment than North American. But when comparing it to its historical volatility, Hitachi Construction Machinery is 1.78 times less risky than North American. It trades about 0.17 of its potential returns per unit of risk. North American Construction is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 1,530 in North American Construction on September 1, 2024 and sell it today you would earn a total of 260.00 from holding North American Construction or generate 16.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hitachi Construction Machinery vs. North American Construction
Performance |
| Timeline |
| Hitachi Construction |
| North American Const |
Hitachi Construction and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hitachi Construction and North American
The main advantage of trading using opposite Hitachi Construction and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.The idea behind Hitachi Construction Machinery and North American Construction 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.| North American vs. Halliburton | North American vs. Tenaris SA | North American vs. Superior Plus Corp | North American vs. NMI Holdings |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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