Correlation Between Hitachi and Itochu Corp
Can any of the company-specific risk be diversified away by investing in both Hitachi and Itochu Corp 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 and Itochu Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hitachi and Itochu Corp ADR, you can compare the effects of market volatilities on Hitachi and Itochu Corp 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 with a short position of Itochu Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi and Itochu Corp.
Diversification Opportunities for Hitachi and Itochu Corp
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Hitachi and Itochu is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi and Itochu Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itochu Corp ADR and Hitachi 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 are associated (or correlated) with Itochu Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itochu Corp ADR has no effect on the direction of Hitachi i.e., Hitachi and Itochu Corp go up and down completely randomly.
Pair Corralation between Hitachi and Itochu Corp
Assuming the 90 days horizon Hitachi is expected to generate 15.39 times more return on investment than Itochu Corp. However, Hitachi is 15.39 times more volatile than Itochu Corp ADR. It trades about 0.06 of its potential returns per unit of risk. Itochu Corp ADR is currently generating about 0.06 per unit of risk. If you would invest 1,400 in Hitachi on August 24, 2024 and sell it today you would earn a total of 1,185 from holding Hitachi or generate 84.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.39% |
| Values | Daily Returns |
Hitachi vs. Itochu Corp ADR
Performance |
| Timeline |
| Hitachi |
| Itochu Corp ADR |
Hitachi and Itochu Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hitachi and Itochu Corp
The main advantage of trading using opposite Hitachi and Itochu Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi position performs unexpectedly, Itochu Corp 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 Itochu Corp will offset losses from the drop in Itochu Corp's long position.The idea behind Hitachi and Itochu Corp ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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