Correlation Between Hitachi Construction and BP Plc

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

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

Diversification Opportunities for Hitachi Construction and BP Plc

0.5

Correlation Coefficient

Hitachi Construction  BP Plc

Very weak diversification

The 3 months correlation between Hitachi and BSU is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Hitachi Construction 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 Hitachi Construction Machinery are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and BP Plc go up and down completely randomly.

Pair Corralation between Hitachi Construction and BP Plc

Assuming the 90 days horizon Hitachi Construction Machinery is expected to under-perform the BP Plc. In addition to that, Hitachi Construction is 1.32 times more volatile than BP plc. It trades about -0.03 of its total potential returns per unit of risk. BP plc is currently generating about -0.03 per unit of volatility. If you would invest  3,368  in BP plc on October 5, 2024 and sell it today you would lose (608.00) from holding BP plc or give up 18.05% of portfolio value over 90 days.

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

Hitachi Construction Machinery  vs.  BP plc

Hitachi Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hitachi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hitachi Construction is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BP Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hitachi Construction and BP Plc

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

The idea behind Hitachi Construction Machinery and BP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.