Correlation Between Mitsui and Arca Continental

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

By analyzing existing cross correlation between Mitsui Co and Arca Continental SAB, you can compare the effects of market volatilities on Mitsui and Arca Continental 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 Mitsui with a short position of Arca Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsui and Arca Continental.

Diversification Opportunities for Mitsui and Arca Continental

0.19

Correlation Coefficient

Mitsui  Arca Continental

Average diversification

The 3 months correlation between Mitsui and Arca is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Co and Arca Continental SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arca Continental SAB and Mitsui 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 Mitsui Co are associated (or correlated) with Arca Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arca Continental SAB has no effect on the direction of Mitsui i.e., Mitsui and Arca Continental go up and down completely randomly.

Pair Corralation between Mitsui and Arca Continental

Assuming the 90 days horizon Mitsui Co is expected to generate 2.2 times more return on investment than Arca Continental. However, Mitsui is 2.2 times more volatile than Arca Continental SAB. It trades about -0.01 of its potential returns per unit of risk. Arca Continental SAB is currently generating about -0.06 per unit of risk. If you would invest  2,002  in Mitsui Co on October 20, 2024 and sell it today you would lose (72.00) from holding Mitsui Co or give up 3.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Mitsui Co  vs.  Arca Continental SAB

Mitsui

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Arca Continental SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arca Continental SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arca Continental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mitsui and Arca Continental

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

The idea behind Mitsui Co and Arca Continental SAB 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.