Correlation Between Hitachi and ITOCHU

Can any of the company-specific risk be diversified away by investing in both Hitachi and ITOCHU 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 and ITOCHU into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hitachi and ITOCHU, you can compare the effects of market volatilities on Hitachi and ITOCHU 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 with a short position of ITOCHU. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi and ITOCHU.

Diversification Opportunities for Hitachi and ITOCHU

0.21

Correlation Coefficient

Hitachi  ITOCHU

Modest diversification

The 3 months correlation between Hitachi and ITOCHU is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU and Hitachi 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 are associated (or correlated) with ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of Hitachi i.e., Hitachi and ITOCHU go up and down completely randomly.

Pair Corralation between Hitachi and ITOCHU

Assuming the 90 days trading horizon Hitachi is expected to generate 1.52 times more return on investment than ITOCHU. However, Hitachi is 1.52 times more volatile than ITOCHU. It trades about 0.11 of its potential returns per unit of risk. ITOCHU is currently generating about 0.04 per unit of risk. If you would invest  2,176  in Hitachi on September 13, 2024 and sell it today you would earn a total of  369.00  from holding Hitachi or generate 16.96% return on investment over 90 days.

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

Hitachi  vs.  ITOCHU

Hitachi

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hitachi reported solid returns over the last few months and may actually be approaching a breakup point.

ITOCHU

Risk-Adjusted Performance

2 of 100

Weak

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

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

The idea behind Hitachi and ITOCHU 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.