Correlation Between Mitsubishi Corp and Marubeni Corp

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

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

Diversification Opportunities for Mitsubishi Corp and Marubeni Corp

0.8

Correlation Coefficient

Mitsubishi Corp  Marubeni Corp

Very poor diversification

The 3 months correlation between Mitsubishi and Marubeni is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Corp and Marubeni Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marubeni Corp ADR and Mitsubishi Corp 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 Corp are associated (or correlated) with Marubeni Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marubeni Corp ADR has no effect on the direction of Mitsubishi Corp i.e., Mitsubishi Corp and Marubeni Corp go up and down completely randomly.

Pair Corralation between Mitsubishi Corp and Marubeni Corp

Assuming the 90 days horizon Mitsubishi Corp is expected to generate 0.99 times more return on investment than Marubeni Corp. However, Mitsubishi Corp is 1.01 times less risky than Marubeni Corp. It trades about -0.07 of its potential returns per unit of risk. Marubeni Corp ADR is currently generating about -0.09 per unit of risk. If you would invest  2,071  in Mitsubishi Corp on September 1, 2024 and sell it today you would lose (384.00) from holding Mitsubishi Corp or give up 18.54% of portfolio value over 90 days.

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

Mitsubishi Corp  vs.  Marubeni Corp ADR

Mitsubishi Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Marubeni Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marubeni Corp ADR 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Mitsubishi Corp and Marubeni Corp

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

The idea behind Mitsubishi Corp and Marubeni Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.