Correlation Between Mazda and Subaru Corp

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

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

Diversification Opportunities for Mazda and Subaru Corp

0.81

Correlation Coefficient

Mazda  Subaru Corp

Very poor diversification

The 3 months correlation between Mazda and Subaru is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Mazda Motor Corp and Subaru Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Subaru Corp ADR and Mazda 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 Mazda Motor Corp are associated (or correlated) with Subaru Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Subaru Corp ADR has no effect on the direction of Mazda i.e., Mazda and Subaru Corp go up and down completely randomly.

Pair Corralation between Mazda and Subaru Corp

Assuming the 90 days horizon Mazda Motor Corp is expected to under-perform the Subaru Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mazda Motor Corp is 1.1 times less risky than Subaru Corp. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Subaru Corp ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  890.00  in Subaru Corp ADR on December 29, 2024 and sell it today you would earn a total of  6.00  from holding Subaru Corp ADR or generate 0.67% return on investment over 90 days.

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

Mazda Motor Corp  vs.  Subaru Corp ADR

Mazda Motor Corp

Risk-Adjusted Performance

Very Weak

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

Subaru Corp ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Subaru Corp ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Subaru Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mazda and Subaru Corp

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

The idea behind Mazda Motor Corp and Subaru 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.