Correlation Between TT Electronics and Hitachi Construction

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

By analyzing existing cross correlation between TT Electronics PLC and Hitachi Construction Machinery, you can compare the effects of market volatilities on TT Electronics and Hitachi 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 TT Electronics with a short position of Hitachi Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of TT Electronics and Hitachi Construction.

Diversification Opportunities for TT Electronics and Hitachi Construction

-0.73

Correlation Coefficient

TT Electronics  Hitachi Construction

Pay attention - limited upside

The 3 months correlation between 7TT and Hitachi is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding TT Electronics PLC and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction and TT Electronics 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 TT Electronics PLC are associated (or correlated) with Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of TT Electronics i.e., TT Electronics and Hitachi Construction go up and down completely randomly.

Pair Corralation between TT Electronics and Hitachi Construction

Assuming the 90 days trading horizon TT Electronics PLC is expected to under-perform the Hitachi Construction. But the stock apears to be less risky and, when comparing its historical volatility, TT Electronics PLC is 1.05 times less risky than Hitachi Construction. The stock trades about -0.18 of its potential returns per unit of risk. The Hitachi Construction Machinery is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,040  in Hitachi Construction Machinery on December 21, 2024 and sell it today you would earn a total of  600.00  from holding Hitachi Construction Machinery or generate 29.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

TT Electronics PLC  vs.  Hitachi Construction Machinery

TT Electronics PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days TT Electronics PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Hitachi Construction

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hitachi Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TT Electronics and Hitachi Construction

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

The idea behind TT Electronics PLC and Hitachi Construction Machinery 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.