Correlation Between 3M and Hitachi
Can any of the company-specific risk be diversified away by investing in both 3M and Hitachi 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 3M and Hitachi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Hitachi, you can compare the effects of market volatilities on 3M and Hitachi 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 3M with a short position of Hitachi. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Hitachi.
Diversification Opportunities for 3M and Hitachi
Weak diversification
The 3 months correlation between 3M and Hitachi is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Hitachi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi and 3M 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 3M Company are associated (or correlated) with Hitachi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi has no effect on the direction of 3M i.e., 3M and Hitachi go up and down completely randomly.
Pair Corralation between 3M and Hitachi
Considering the 90-day investment horizon 3M Company is expected to under-perform the Hitachi. But the stock apears to be less risky and, when comparing its historical volatility, 3M Company is 3.59 times less risky than Hitachi. The stock trades about -0.01 of its potential returns per unit of risk. The Hitachi is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,540 in Hitachi on August 29, 2024 and sell it today you would lose (126.00) from holding Hitachi or give up 4.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. Hitachi
Performance |
| Timeline |
| 3M Company |
| Hitachi |
3M and Hitachi Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Hitachi
The main advantage of trading using opposite 3M and Hitachi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Hitachi 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 Hitachi will offset losses from the drop in Hitachi's long position.The idea behind 3M Company and Hitachi 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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