Correlation Between Hitachi Construction and Vale SA

Can any of the company-specific risk be diversified away by investing in both Hitachi Construction and Vale SA 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 Vale SA 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 Vale SA, you can compare the effects of market volatilities on Hitachi Construction and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi Construction and Vale SA.

Diversification Opportunities for Hitachi Construction and Vale SA

0.87

Correlation Coefficient

Hitachi Construction  Vale SA

Very poor diversification

The 3 months correlation between Hitachi and Vale is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Vale SA go up and down completely randomly.

Pair Corralation between Hitachi Construction and Vale SA

Assuming the 90 days horizon Hitachi Construction Machinery is expected to generate 1.29 times more return on investment than Vale SA. However, Hitachi Construction is 1.29 times more volatile than Vale SA. It trades about 0.15 of its potential returns per unit of risk. Vale SA is currently generating about 0.13 per unit of risk. If you would invest  2,005  in Hitachi Construction Machinery on December 29, 2024 and sell it today you would earn a total of  395.00  from holding Hitachi Construction Machinery or generate 19.7% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Vale SA

Hitachi Construction

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Hitachi Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Vale SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and Vale SA

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

The idea behind Hitachi Construction Machinery and Vale SA 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.