Correlation Between MITSUBISHI STEEL and Gamma Communications

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

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

Diversification Opportunities for MITSUBISHI STEEL and Gamma Communications

0.38

Correlation Coefficient

MITSUBISHI STEEL  Gamma Communications

Weak diversification

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

Pair Corralation between MITSUBISHI STEEL and Gamma Communications

Assuming the 90 days horizon MITSUBISHI STEEL MFG is expected to generate 0.74 times more return on investment than Gamma Communications. However, MITSUBISHI STEEL MFG is 1.36 times less risky than Gamma Communications. It trades about 0.16 of its potential returns per unit of risk. Gamma Communications plc is currently generating about -0.01 per unit of risk. If you would invest  840.00  in MITSUBISHI STEEL MFG on September 22, 2024 and sell it today you would earn a total of  35.00  from holding MITSUBISHI STEEL MFG or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MITSUBISHI STEEL MFG  vs.  Gamma Communications plc

MITSUBISHI STEEL MFG

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MITSUBISHI STEEL MFG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MITSUBISHI STEEL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Gamma Communications plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MITSUBISHI STEEL and Gamma Communications

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

The idea behind MITSUBISHI STEEL MFG and Gamma Communications plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.