Correlation Between Hitachi Construction and Tempur Sealy

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

Diversification Opportunities for Hitachi Construction and Tempur Sealy

0.13

Correlation Coefficient

Hitachi Construction  Tempur Sealy

Average diversification

The 3 months correlation between Hitachi and Tempur is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Tempur Sealy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tempur Sealy Interna 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 Tempur Sealy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tempur Sealy Interna has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Tempur Sealy go up and down completely randomly.

Pair Corralation between Hitachi Construction and Tempur Sealy

Assuming the 90 days horizon Hitachi Construction Machinery is expected to generate 0.85 times more return on investment than Tempur Sealy. However, Hitachi Construction Machinery is 1.17 times less risky than Tempur Sealy. It trades about 0.21 of its potential returns per unit of risk. Tempur Sealy International is currently generating about -0.01 per unit of risk. If you would invest  2,040  in Hitachi Construction Machinery on December 21, 2024 and sell it today you would earn a total of  560.00  from holding Hitachi Construction Machinery or generate 27.45% 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.  Tempur Sealy International

Hitachi Construction

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 16 (%) 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.

Tempur Sealy Interna

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Hitachi Construction Machinery and Tempur Sealy International 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.