Correlation Between NYSE Composite and Hitachi Construction

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

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

Diversification Opportunities for NYSE Composite and Hitachi Construction

-0.31

Correlation Coefficient

NYSE Composite  Hitachi Construction

Very good diversification

The 3 months correlation between NYSE and Hitachi is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction and NYSE Composite 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 NYSE Composite are associated (or correlated) with Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of NYSE Composite i.e., NYSE Composite and Hitachi Construction go up and down completely randomly.

Pair Corralation between NYSE Composite and Hitachi Construction

Assuming the 90 days trading horizon NYSE Composite is expected to generate 36.81 times less return on investment than Hitachi Construction. But when comparing it to its historical volatility, NYSE Composite is 7.2 times less risky than Hitachi Construction. It trades about 0.01 of its potential returns per unit of risk. Hitachi Construction Machinery is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,364  in Hitachi Construction Machinery on September 17, 2024 and sell it today you would earn a total of  78.00  from holding Hitachi Construction Machinery or generate 1.79% return on investment over 90 days.

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

NYSE Composite  vs.  Hitachi Construction Machinery

Pair Trading with NYSE Composite and Hitachi Construction

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

The idea behind NYSE Composite and Hitachi Construction Machinery 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.