Correlation Between Hitachi Construction and RTL Group

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

Diversification Opportunities for Hitachi Construction and RTL Group

0.16

Correlation Coefficient

Hitachi Construction  RTL Group

Average diversification

The 3 months correlation between Hitachi and RTL is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and RTL Group SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RTL Group 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 RTL Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RTL Group SA has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and RTL Group go up and down completely randomly.

Pair Corralation between Hitachi Construction and RTL Group

Assuming the 90 days horizon Hitachi Construction Machinery is expected to generate 1.31 times more return on investment than RTL Group. However, Hitachi Construction is 1.31 times more volatile than RTL Group SA. It trades about 0.01 of its potential returns per unit of risk. RTL Group SA is currently generating about -0.04 per unit of risk. If you would invest  2,080  in Hitachi Construction Machinery on October 11, 2024 and sell it today you would earn a total of  0.00  from holding Hitachi Construction Machinery or generate 0.0% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  RTL Group SA

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.

RTL Group SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RTL Group SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Hitachi Construction and RTL Group

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

The idea behind Hitachi Construction Machinery and RTL Group 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.