Correlation Between Mitsubishi UFJ and Kone Oyj

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

Diversification Opportunities for Mitsubishi UFJ and Kone Oyj

-0.49

Correlation Coefficient

Mitsubishi UFJ  Kone Oyj

Very good diversification

The 3 months correlation between Mitsubishi and Kone is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi UFJ Financial and Kone Oyj ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kone Oyj ADR 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 Kone Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kone Oyj ADR has no effect on the direction of Mitsubishi UFJ i.e., Mitsubishi UFJ and Kone Oyj go up and down completely randomly.

Pair Corralation between Mitsubishi UFJ and Kone Oyj

Assuming the 90 days horizon Mitsubishi UFJ Financial is expected to generate 1.82 times more return on investment than Kone Oyj. However, Mitsubishi UFJ is 1.82 times more volatile than Kone Oyj ADR. It trades about 0.09 of its potential returns per unit of risk. Kone Oyj ADR is currently generating about -0.04 per unit of risk. If you would invest  951.00  in Mitsubishi UFJ Financial on September 3, 2024 and sell it today you would earn a total of  131.00  from holding Mitsubishi UFJ Financial or generate 13.77% return on investment over 90 days.

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

Mitsubishi UFJ Financial  vs.  Kone Oyj ADR

Mitsubishi UFJ Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward-looking indicators, Mitsubishi UFJ reported solid returns over the last few months and may actually be approaching a breakup point.

Kone Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kone Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Kone Oyj is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mitsubishi UFJ and Kone Oyj

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

The idea behind Mitsubishi UFJ Financial and Kone Oyj 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.