Correlation Between Apple and Mitsubishi Materials

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

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

Diversification Opportunities for Apple and Mitsubishi Materials

-0.52

Correlation Coefficient

Apple  Mitsubishi Materials

Excellent diversification

The 3 months correlation between Apple and Mitsubishi is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Mitsubishi Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Materials and Apple 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 Apple Inc are associated (or correlated) with Mitsubishi Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Materials has no effect on the direction of Apple i.e., Apple and Mitsubishi Materials go up and down completely randomly.

Pair Corralation between Apple and Mitsubishi Materials

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.91 times more return on investment than Mitsubishi Materials. However, Apple Inc is 1.1 times less risky than Mitsubishi Materials. It trades about 0.01 of its potential returns per unit of risk. Mitsubishi Materials is currently generating about -0.01 per unit of risk. If you would invest  22,975  in Apple Inc on December 3, 2024 and sell it today you would lose (10.00) from holding Apple Inc or give up 0.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Apple Inc  vs.  Mitsubishi Materials

Apple Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Apple is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Mitsubishi Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mitsubishi Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Mitsubishi Materials is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Apple and Mitsubishi Materials

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

The idea behind Apple Inc and Mitsubishi Materials 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.