Correlation Between CN MODERN and MITSUBISHI STEEL

Can any of the company-specific risk be diversified away by investing in both CN MODERN and MITSUBISHI STEEL 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 CN MODERN and MITSUBISHI STEEL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CN MODERN DAIRY and MITSUBISHI STEEL MFG, you can compare the effects of market volatilities on CN MODERN and MITSUBISHI STEEL 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 CN MODERN with a short position of MITSUBISHI STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of CN MODERN and MITSUBISHI STEEL.

Diversification Opportunities for CN MODERN and MITSUBISHI STEEL

0.38

Correlation Coefficient

CN MODERN  MITSUBISHI STEEL

Weak diversification

The 3 months correlation between 07M and MITSUBISHI is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding CN MODERN DAIRY and MITSUBISHI STEEL MFG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MITSUBISHI STEEL MFG and CN MODERN 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 CN MODERN DAIRY are associated (or correlated) with MITSUBISHI STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MITSUBISHI STEEL MFG has no effect on the direction of CN MODERN i.e., CN MODERN and MITSUBISHI STEEL go up and down completely randomly.

Pair Corralation between CN MODERN and MITSUBISHI STEEL

Assuming the 90 days trading horizon CN MODERN DAIRY is expected to generate 1.77 times more return on investment than MITSUBISHI STEEL. However, CN MODERN is 1.77 times more volatile than MITSUBISHI STEEL MFG. It trades about 0.1 of its potential returns per unit of risk. MITSUBISHI STEEL MFG is currently generating about 0.06 per unit of risk. If you would invest  6.95  in CN MODERN DAIRY on October 26, 2024 and sell it today you would earn a total of  3.05  from holding CN MODERN DAIRY or generate 43.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

CN MODERN DAIRY  vs.  MITSUBISHI STEEL MFG

CN MODERN DAIRY

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CN MODERN DAIRY are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, CN MODERN is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

MITSUBISHI STEEL MFG

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MITSUBISHI STEEL MFG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, MITSUBISHI STEEL reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CN MODERN and MITSUBISHI STEEL

The main advantage of trading using opposite CN MODERN and MITSUBISHI STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CN MODERN position performs unexpectedly, MITSUBISHI STEEL 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 MITSUBISHI STEEL will offset losses from the drop in MITSUBISHI STEEL's long position.

The idea behind CN MODERN DAIRY and MITSUBISHI STEEL MFG 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.