Correlation Between Kawasaki Heavy and Fujitsu

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

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

Diversification Opportunities for Kawasaki Heavy and Fujitsu

0.6

Correlation Coefficient

Kawasaki Heavy  Fujitsu

Poor diversification

The 3 months correlation between Kawasaki and Fujitsu is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Kawasaki Heavy Industries and Fujitsu Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujitsu Ltd ADR and Kawasaki Heavy 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 Kawasaki Heavy Industries are associated (or correlated) with Fujitsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujitsu Ltd ADR has no effect on the direction of Kawasaki Heavy i.e., Kawasaki Heavy and Fujitsu go up and down completely randomly.

Pair Corralation between Kawasaki Heavy and Fujitsu

Assuming the 90 days horizon Kawasaki Heavy Industries is expected to generate 1.96 times more return on investment than Fujitsu. However, Kawasaki Heavy is 1.96 times more volatile than Fujitsu Ltd ADR. It trades about 0.31 of its potential returns per unit of risk. Fujitsu Ltd ADR is currently generating about 0.16 per unit of risk. If you would invest  1,830  in Kawasaki Heavy Industries on December 6, 2024 and sell it today you would earn a total of  480.00  from holding Kawasaki Heavy Industries or generate 26.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Kawasaki Heavy Industries  vs.  Fujitsu Ltd ADR

Kawasaki Heavy Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kawasaki Heavy Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Kawasaki Heavy showed solid returns over the last few months and may actually be approaching a breakup point.

Fujitsu Ltd ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fujitsu Ltd ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Fujitsu showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kawasaki Heavy and Fujitsu

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

The idea behind Kawasaki Heavy Industries and Fujitsu Ltd 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.