Correlation Between Hitachi Construction and CarsalesCom

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

Diversification Opportunities for Hitachi Construction and CarsalesCom

-0.09

Correlation Coefficient

Hitachi Construction  CarsalesCom

Good diversification

The 3 months correlation between Hitachi and CarsalesCom is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 CarsalesCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and CarsalesCom go up and down completely randomly.

Pair Corralation between Hitachi Construction and CarsalesCom

Assuming the 90 days horizon Hitachi Construction Machinery is expected to generate 1.33 times more return on investment than CarsalesCom. However, Hitachi Construction is 1.33 times more volatile than CarsalesCom. It trades about -0.06 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.64 per unit of risk. If you would invest  2,080  in Hitachi Construction Machinery on September 29, 2024 and sell it today you would lose (40.00) from holding Hitachi Construction Machinery or give up 1.92% of portfolio value over 90 days.

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

Hitachi Construction Machinery  vs.  CarsalesCom

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.

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Hitachi Construction Machinery and CarsalesCom 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.