Correlation Between Hitachi and World Oil
Can any of the company-specific risk be diversified away by investing in both Hitachi and World Oil 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 World Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hitachi and World Oil Group, you can compare the effects of market volatilities on Hitachi and World Oil 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 World Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi and World Oil.
Diversification Opportunities for Hitachi and World Oil
Very weak diversification
The 3 months correlation between Hitachi and World is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi and World Oil Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Oil Group 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 World Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Oil Group has no effect on the direction of Hitachi i.e., Hitachi and World Oil go up and down completely randomly.
Pair Corralation between Hitachi and World Oil
Assuming the 90 days horizon Hitachi is expected to generate 6.34 times more return on investment than World Oil. However, Hitachi is 6.34 times more volatile than World Oil Group. It trades about 0.13 of its potential returns per unit of risk. World Oil Group is currently generating about 0.06 per unit of risk. If you would invest 5,237 in Hitachi on September 1, 2024 and sell it today you would lose (2,669) from holding Hitachi or give up 50.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 96.7% |
| Values | Daily Returns |
Hitachi vs. World Oil Group
Performance |
| Timeline |
| Hitachi |
| World Oil Group |
Hitachi and World Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hitachi and World Oil
The main advantage of trading using opposite Hitachi and World Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi position performs unexpectedly, World Oil 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 World Oil will offset losses from the drop in World Oil's long position.The idea behind Hitachi and World Oil Group 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.| World Oil vs. Flex | World Oil vs. Constellation Brands Class | World Oil vs. Compania Cervecerias Unidas | World Oil vs. Boston Beer |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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