Correlation Between PI Advanced and Hanshin Construction

Can any of the company-specific risk be diversified away by investing in both PI Advanced and Hanshin Construction 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 PI Advanced and Hanshin Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PI Advanced Materials and Hanshin Construction Co, you can compare the effects of market volatilities on PI Advanced and Hanshin Construction 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 PI Advanced with a short position of Hanshin Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of PI Advanced and Hanshin Construction.

Diversification Opportunities for PI Advanced and Hanshin Construction

-0.23

Correlation Coefficient

PI Advanced  Hanshin Construction

Very good diversification

The 3 months correlation between 178920 and Hanshin is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding PI Advanced Materials and Hanshin Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanshin Construction and PI Advanced 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 PI Advanced Materials are associated (or correlated) with Hanshin Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanshin Construction has no effect on the direction of PI Advanced i.e., PI Advanced and Hanshin Construction go up and down completely randomly.

Pair Corralation between PI Advanced and Hanshin Construction

Assuming the 90 days trading horizon PI Advanced Materials is expected to generate 2.57 times more return on investment than Hanshin Construction. However, PI Advanced is 2.57 times more volatile than Hanshin Construction Co. It trades about -0.02 of its potential returns per unit of risk. Hanshin Construction Co is currently generating about -0.09 per unit of risk. If you would invest  1,900,000  in PI Advanced Materials on December 5, 2024 and sell it today you would lose (83,000) from holding PI Advanced Materials or give up 4.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

PI Advanced Materials  vs.  Hanshin Construction Co

PI Advanced Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PI Advanced Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PI Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Hanshin Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hanshin Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hanshin Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PI Advanced and Hanshin Construction

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

The idea behind PI Advanced Materials and Hanshin Construction Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.