Correlation Between Mitsubishi UFJ and DTCOM Direct

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

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

Diversification Opportunities for Mitsubishi UFJ and DTCOM Direct

-0.35

Correlation Coefficient

Mitsubishi UFJ  DTCOM Direct

Very good diversification

The 3 months correlation between Mitsubishi and DTCOM is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi UFJ Financial and DTCOM Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DTCOM Direct and Mitsubishi UFJ 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 Mitsubishi UFJ Financial are associated (or correlated) with DTCOM Direct. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DTCOM Direct has no effect on the direction of Mitsubishi UFJ i.e., Mitsubishi UFJ and DTCOM Direct go up and down completely randomly.

Pair Corralation between Mitsubishi UFJ and DTCOM Direct

Assuming the 90 days trading horizon Mitsubishi UFJ Financial is expected to generate 0.87 times more return on investment than DTCOM Direct. However, Mitsubishi UFJ Financial is 1.15 times less risky than DTCOM Direct. It trades about 0.11 of its potential returns per unit of risk. DTCOM Direct is currently generating about -0.07 per unit of risk. If you would invest  7,203  in Mitsubishi UFJ Financial on December 26, 2024 and sell it today you would earn a total of  1,077  from holding Mitsubishi UFJ Financial or generate 14.95% return on investment over 90 days.

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

Mitsubishi UFJ Financial  vs.  DTCOM Direct

Mitsubishi UFJ Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mitsubishi UFJ sustained solid returns over the last few months and may actually be approaching a breakup point.

DTCOM Direct

Risk-Adjusted Performance

Very Weak

Over the last 90 days DTCOM Direct has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Mitsubishi UFJ and DTCOM Direct

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

The idea behind Mitsubishi UFJ Financial and DTCOM Direct 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.