Correlation Between Kaiser Aluminum and Mitsubishi Materials

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

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

Diversification Opportunities for Kaiser Aluminum and Mitsubishi Materials

0.44

Correlation Coefficient

Kaiser Aluminum  Mitsubishi Materials

Very weak diversification

The 3 months correlation between Kaiser and Mitsubishi is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Mitsubishi Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Materials and Kaiser Aluminum 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 Kaiser Aluminum are associated (or correlated) with Mitsubishi Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Materials has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Mitsubishi Materials go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Mitsubishi Materials

Assuming the 90 days trading horizon Kaiser Aluminum is expected to under-perform the Mitsubishi Materials. In addition to that, Kaiser Aluminum is 1.13 times more volatile than Mitsubishi Materials. It trades about -0.06 of its total potential returns per unit of risk. Mitsubishi Materials is currently generating about 0.0 per unit of volatility. If you would invest  1,520  in Mitsubishi Materials on December 2, 2024 and sell it today you would lose (10.00) from holding Mitsubishi Materials or give up 0.66% of portfolio value over 90 days.

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

Kaiser Aluminum  vs.  Mitsubishi Materials

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Mitsubishi Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mitsubishi Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Mitsubishi Materials is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kaiser Aluminum and Mitsubishi Materials

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

The idea behind Kaiser Aluminum and Mitsubishi Materials 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.