Correlation Between Hitachi Construction and Walgreens Boots

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

Diversification Opportunities for Hitachi Construction and Walgreens Boots

-0.35

Correlation Coefficient

Hitachi Construction  Walgreens Boots

Very good diversification

The 3 months correlation between Hitachi and Walgreens is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Walgreens Boots Alliance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walgreens Boots Alliance 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 Walgreens Boots. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walgreens Boots Alliance has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Walgreens Boots go up and down completely randomly.

Pair Corralation between Hitachi Construction and Walgreens Boots

Assuming the 90 days horizon Hitachi Construction Machinery is expected to under-perform the Walgreens Boots. But the stock apears to be less risky and, when comparing its historical volatility, Hitachi Construction Machinery is 1.71 times less risky than Walgreens Boots. The stock trades about -0.01 of its potential returns per unit of risk. The Walgreens Boots Alliance is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  787.00  in Walgreens Boots Alliance on September 3, 2024 and sell it today you would earn a total of  62.00  from holding Walgreens Boots Alliance or generate 7.88% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Walgreens Boots Alliance

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Walgreens Boots Alliance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Walgreens Boots may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hitachi Construction and Walgreens Boots

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

The idea behind Hitachi Construction Machinery and Walgreens Boots Alliance 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..