Correlation Between Hitachi Construction and POSCO Holdings
Can any of the company-specific risk be diversified away by investing in both Hitachi Construction and POSCO Holdings 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 POSCO Holdings 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 POSCO Holdings, you can compare the effects of market volatilities on Hitachi Construction and POSCO Holdings 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 POSCO Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi Construction and POSCO Holdings.
Diversification Opportunities for Hitachi Construction and POSCO Holdings
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hitachi and POSCO is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings 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 POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and POSCO Holdings go up and down completely randomly.
Pair Corralation between Hitachi Construction and POSCO Holdings
Assuming the 90 days horizon Hitachi Construction Machinery is expected to under-perform the POSCO Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Hitachi Construction Machinery is 1.69 times less risky than POSCO Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The POSCO Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 6,487 in POSCO Holdings on September 2, 2024 and sell it today you would lose (1,767) from holding POSCO Holdings or give up 27.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.47% |
| Values | Daily Returns |
Hitachi Construction Machinery vs. POSCO Holdings
Performance |
| Timeline |
| Hitachi Construction |
| POSCO Holdings |
Hitachi Construction and POSCO Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hitachi Construction and POSCO Holdings
The main advantage of trading using opposite Hitachi Construction and POSCO Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction position performs unexpectedly, POSCO Holdings 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 POSCO Holdings will offset losses from the drop in POSCO Holdings' long position.The idea behind Hitachi Construction Machinery and POSCO Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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