Correlation Between Hitachi Construction and Western Digital

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

Diversification Opportunities for Hitachi Construction and Western Digital

0.12

Correlation Coefficient

Hitachi Construction  Western Digital

Average diversification

The 3 months correlation between Hitachi and Western is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Western Digital go up and down completely randomly.

Pair Corralation between Hitachi Construction and Western Digital

Assuming the 90 days horizon Hitachi Construction Machinery is expected to under-perform the Western Digital. But the stock apears to be less risky and, when comparing its historical volatility, Hitachi Construction Machinery is 1.43 times less risky than Western Digital. The stock trades about -0.02 of its potential returns per unit of risk. The Western Digital is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,985  in Western Digital on October 9, 2024 and sell it today you would earn a total of  209.00  from holding Western Digital or generate 3.49% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Western Digital

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.

Western Digital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Western Digital 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 Western Digital

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

The idea behind Hitachi Construction Machinery and Western Digital 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 Global Correlations module to find global opportunities by holding instruments from different markets.