Correlation Between Mitsui Co and ITOCHU

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

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

Diversification Opportunities for Mitsui Co and ITOCHU

0.74

Correlation Coefficient

Mitsui Co  ITOCHU

Poor diversification

The 3 months correlation between Mitsui and ITOCHU is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Co and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU and Mitsui Co 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 ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of Mitsui Co i.e., Mitsui Co and ITOCHU go up and down completely randomly.

Pair Corralation between Mitsui Co and ITOCHU

Assuming the 90 days horizon Mitsui Co is expected to under-perform the ITOCHU. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mitsui Co is 1.0 times less risky than ITOCHU. The pink sheet trades about -0.03 of its potential returns per unit of risk. The ITOCHU is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,510  in ITOCHU on December 1, 2024 and sell it today you would earn a total of  40.00  from holding ITOCHU or generate 0.89% return on investment over 90 days.

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

Mitsui Co  vs.  ITOCHU

Mitsui Co

Risk-Adjusted Performance

Very Weak

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

ITOCHU

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITOCHU has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental 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 Mitsui Co and ITOCHU

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

The idea behind Mitsui Co and ITOCHU 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.