Correlation Between Hitachi Construction and Kubota

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

Diversification Opportunities for Hitachi Construction and Kubota

0.75

Correlation Coefficient

Hitachi Construction  Kubota

Poor diversification

The 3 months correlation between Hitachi and Kubota is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Kubota in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kubota 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 Kubota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kubota has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Kubota go up and down completely randomly.

Pair Corralation between Hitachi Construction and Kubota

Assuming the 90 days horizon Hitachi Construction Machinery is expected to generate 1.32 times more return on investment than Kubota. However, Hitachi Construction is 1.32 times more volatile than Kubota. It trades about 0.15 of its potential returns per unit of risk. Kubota is currently generating about 0.0 per unit of risk. If you would invest  2,120  in Hitachi Construction Machinery on December 4, 2024 and sell it today you would earn a total of  340.00  from holding Hitachi Construction Machinery or generate 16.04% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Kubota

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 12 (%) 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.

Kubota

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kubota has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Kubota 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 Kubota

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

The idea behind Hitachi Construction Machinery and Kubota 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..