Correlation Between KeppelLimited and Itochu Corp

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

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

Diversification Opportunities for KeppelLimited and Itochu Corp

-0.02

Correlation Coefficient

KeppelLimited  Itochu Corp

Good diversification

The 3 months correlation between KeppelLimited and Itochu is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Keppel Limited and Itochu Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itochu Corp ADR and KeppelLimited 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 Keppel Limited are associated (or correlated) with Itochu Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itochu Corp ADR has no effect on the direction of KeppelLimited i.e., KeppelLimited and Itochu Corp go up and down completely randomly.

Pair Corralation between KeppelLimited and Itochu Corp

Assuming the 90 days horizon Keppel Limited is expected to generate 1.26 times more return on investment than Itochu Corp. However, KeppelLimited is 1.26 times more volatile than Itochu Corp ADR. It trades about 0.07 of its potential returns per unit of risk. Itochu Corp ADR is currently generating about 0.02 per unit of risk. If you would invest  965.00  in Keppel Limited on December 21, 2024 and sell it today you would earn a total of  78.00  from holding Keppel Limited or generate 8.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.61%
Values	Daily Returns

Keppel Limited  vs.  Itochu Corp ADR

Keppel Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Keppel Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, KeppelLimited may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Itochu Corp ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Itochu Corp ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Itochu Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KeppelLimited and Itochu Corp

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

The idea behind Keppel Limited and Itochu Corp ADR 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.