Correlation Between Hitachi and Sumitomo

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

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

Diversification Opportunities for Hitachi and Sumitomo

0.46

Correlation Coefficient

Hitachi  Sumitomo

Very weak diversification

The 3 months correlation between Hitachi and Sumitomo is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo 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 Sumitomo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo has no effect on the direction of Hitachi i.e., Hitachi and Sumitomo go up and down completely randomly.

Pair Corralation between Hitachi and Sumitomo

Assuming the 90 days trading horizon Hitachi is expected to generate 0.94 times more return on investment than Sumitomo. However, Hitachi is 1.06 times less risky than Sumitomo. It trades about 0.03 of its potential returns per unit of risk. Sumitomo is currently generating about 0.0 per unit of risk. If you would invest  2,353  in Hitachi on September 23, 2024 and sell it today you would earn a total of  26.00  from holding Hitachi or generate 1.1% return on investment over 90 days.

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

Hitachi  vs.  Sumitomo

Hitachi

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hitachi is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Sumitomo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hitachi and Sumitomo

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

The idea behind Hitachi and Sumitomo 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.