Correlation Between Kawasaki Heavy and Mitsubishi Heavy

Can any of the company-specific risk be diversified away by investing in both Kawasaki Heavy and Mitsubishi Heavy 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 Mitsubishi Heavy 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 Mitsubishi Heavy Industries, you can compare the effects of market volatilities on Kawasaki Heavy and Mitsubishi Heavy 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 Mitsubishi Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kawasaki Heavy and Mitsubishi Heavy.

Diversification Opportunities for Kawasaki Heavy and Mitsubishi Heavy

-0.48

Correlation Coefficient

Kawasaki Heavy  Mitsubishi Heavy

Very good diversification

The 3 months correlation between Kawasaki and Mitsubishi is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Kawasaki Heavy Industries and Mitsubishi Heavy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Heavy Ind 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 Mitsubishi Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Heavy Ind has no effect on the direction of Kawasaki Heavy i.e., Kawasaki Heavy and Mitsubishi Heavy go up and down completely randomly.

Pair Corralation between Kawasaki Heavy and Mitsubishi Heavy

Assuming the 90 days horizon Kawasaki Heavy Industries is expected to generate 1.12 times more return on investment than Mitsubishi Heavy. However, Kawasaki Heavy is 1.12 times more volatile than Mitsubishi Heavy Industries. It trades about 0.16 of its potential returns per unit of risk. Mitsubishi Heavy Industries is currently generating about -0.05 per unit of risk. If you would invest  1,491  in Kawasaki Heavy Industries on December 2, 2024 and sell it today you would earn a total of  519.00  from holding Kawasaki Heavy Industries or generate 34.81% return on investment over 90 days.

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

Kawasaki Heavy Industries  vs.  Mitsubishi Heavy Industries

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 12 (%) 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.

Mitsubishi Heavy Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mitsubishi Heavy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Pair Trading with Kawasaki Heavy and Mitsubishi Heavy

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

The idea behind Kawasaki Heavy Industries and Mitsubishi Heavy Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.