Correlation Between Kingfisher Plc and Hitachi Construction

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

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

Diversification Opportunities for Kingfisher Plc and Hitachi Construction

-0.05

Correlation Coefficient

Kingfisher Plc  Hitachi Construction

Good diversification

The 3 months correlation between Kingfisher and Hitachi is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Kingfisher plc and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction and Kingfisher Plc 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 Kingfisher plc are associated (or correlated) with Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of Kingfisher Plc i.e., Kingfisher Plc and Hitachi Construction go up and down completely randomly.

Pair Corralation between Kingfisher Plc and Hitachi Construction

Assuming the 90 days trading horizon Kingfisher plc is expected to under-perform the Hitachi Construction. But the stock apears to be less risky and, when comparing its historical volatility, Kingfisher plc is 1.51 times less risky than Hitachi Construction. The stock trades about -0.4 of its potential returns per unit of risk. The Hitachi Construction Machinery is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  2,180  in Hitachi Construction Machinery on October 9, 2024 and sell it today you would lose (80.00) from holding Hitachi Construction Machinery or give up 3.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.12%
Values	Daily Returns

Kingfisher plc  vs.  Hitachi Construction Machinery

Kingfisher plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kingfisher plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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.

Pair Trading with Kingfisher Plc and Hitachi Construction

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

The idea behind Kingfisher plc and Hitachi Construction Machinery 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.