Correlation Between Deutsche Lufthansa and MITSUBISHI STEEL

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

By analyzing existing cross correlation between Deutsche Lufthansa AG and MITSUBISHI STEEL MFG, you can compare the effects of market volatilities on Deutsche Lufthansa and MITSUBISHI STEEL 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 Deutsche Lufthansa with a short position of MITSUBISHI STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Lufthansa and MITSUBISHI STEEL.

Diversification Opportunities for Deutsche Lufthansa and MITSUBISHI STEEL

-0.15

Correlation Coefficient

Deutsche Lufthansa  MITSUBISHI STEEL

Good diversification

The 3 months correlation between Deutsche and MITSUBISHI is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Lufthansa AG and MITSUBISHI STEEL MFG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MITSUBISHI STEEL MFG and Deutsche Lufthansa 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 Deutsche Lufthansa AG are associated (or correlated) with MITSUBISHI STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MITSUBISHI STEEL MFG has no effect on the direction of Deutsche Lufthansa i.e., Deutsche Lufthansa and MITSUBISHI STEEL go up and down completely randomly.

Pair Corralation between Deutsche Lufthansa and MITSUBISHI STEEL

Assuming the 90 days horizon Deutsche Lufthansa AG is expected to under-perform the MITSUBISHI STEEL. But the stock apears to be less risky and, when comparing its historical volatility, Deutsche Lufthansa AG is 1.19 times less risky than MITSUBISHI STEEL. The stock trades about -0.04 of its potential returns per unit of risk. The MITSUBISHI STEEL MFG is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,030  in MITSUBISHI STEEL MFG on October 2, 2024 and sell it today you would lose (100.00) from holding MITSUBISHI STEEL MFG or give up 9.71% of portfolio value over 90 days.

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

Deutsche Lufthansa AG  vs.  MITSUBISHI STEEL MFG

Deutsche Lufthansa

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Lufthansa AG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Deutsche Lufthansa is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MITSUBISHI STEEL MFG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MITSUBISHI STEEL MFG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, MITSUBISHI STEEL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deutsche Lufthansa and MITSUBISHI STEEL

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

The idea behind Deutsche Lufthansa AG and MITSUBISHI STEEL MFG 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.