Correlation Between Itochu Corp and World Oil
Can any of the company-specific risk be diversified away by investing in both Itochu Corp 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 Itochu Corp and World Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Itochu Corp ADR and World Oil Group, you can compare the effects of market volatilities on Itochu Corp 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 Itochu Corp with a short position of World Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Itochu Corp and World Oil.
Diversification Opportunities for Itochu Corp and World Oil
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Itochu and World is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Itochu Corp ADR 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 Itochu Corp 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 Itochu Corp ADR 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 Itochu Corp i.e., Itochu Corp and World Oil go up and down completely randomly.
Pair Corralation between Itochu Corp and World Oil
Assuming the 90 days horizon Itochu Corp ADR is expected to under-perform the World Oil. But the pink sheet apears to be less risky and, when comparing its historical volatility, Itochu Corp ADR is 7.58 times less risky than World Oil. The pink sheet trades about -0.03 of its potential returns per unit of risk. The World Oil Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1.95 in World Oil Group on August 29, 2024 and sell it today you would earn a total of 0.04 from holding World Oil Group or generate 2.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Itochu Corp ADR vs. World Oil Group
Performance |
| Timeline |
| Itochu Corp ADR |
| World Oil Group |
Itochu Corp and World Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Itochu Corp and World Oil
The main advantage of trading using opposite Itochu Corp and World Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itochu Corp 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.| Itochu Corp vs. Honeywell International | Itochu Corp vs. 3M Company | Itochu Corp vs. Mitsubishi Corp | Itochu Corp vs. Hitachi |
| World Oil vs. Honeywell International | World Oil vs. 3M Company | World Oil vs. Mitsubishi Corp | World Oil vs. Hitachi |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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