Correlation Between Itochu Corp and Mitsubishi Corp

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

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

Diversification Opportunities for Itochu Corp and Mitsubishi Corp

0.5

Correlation Coefficient

Itochu Corp  Mitsubishi Corp

Very weak diversification

The 3 months correlation between Itochu and Mitsubishi is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Itochu Corp ADR and Mitsubishi Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Corp and Itochu Corp 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 Itochu Corp ADR are associated (or correlated) with Mitsubishi Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Corp has no effect on the direction of Itochu Corp i.e., Itochu Corp and Mitsubishi Corp go up and down completely randomly.

Pair Corralation between Itochu Corp and Mitsubishi Corp

Assuming the 90 days horizon Itochu Corp ADR is expected to under-perform the Mitsubishi Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Itochu Corp ADR is 1.28 times less risky than Mitsubishi Corp. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Mitsubishi Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,630  in Mitsubishi Corp on December 1, 2024 and sell it today you would earn a total of  40.00  from holding Mitsubishi Corp or generate 2.45% return on investment over 90 days.

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

Itochu Corp ADR  vs.  Mitsubishi Corp

Itochu Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Mitsubishi Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Itochu Corp and Mitsubishi Corp

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

The idea behind Itochu Corp ADR and Mitsubishi Corp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.