Correlation Between RF Industries and Mitsubishi Electric

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

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

Diversification Opportunities for RF Industries and Mitsubishi Electric

-0.33

Correlation Coefficient

RF Industries  Mitsubishi Electric

Very good diversification

The 3 months correlation between RFIL and Mitsubishi is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding RF Industries and Mitsubishi Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Electric and RF Industries 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 RF Industries are associated (or correlated) with Mitsubishi Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Electric has no effect on the direction of RF Industries i.e., RF Industries and Mitsubishi Electric go up and down completely randomly.

Pair Corralation between RF Industries and Mitsubishi Electric

Given the investment horizon of 90 days RF Industries is expected to under-perform the Mitsubishi Electric. But the stock apears to be less risky and, when comparing its historical volatility, RF Industries is 1.07 times less risky than Mitsubishi Electric. The stock trades about -0.56 of its potential returns per unit of risk. The Mitsubishi Electric is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,699  in Mitsubishi Electric on December 5, 2024 and sell it today you would lose (137.00) from holding Mitsubishi Electric or give up 8.06% of portfolio value over 90 days.

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

RF Industries  vs.  Mitsubishi Electric

RF Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days RF Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, RF Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Mitsubishi Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mitsubishi Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential 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 RF Industries and Mitsubishi Electric

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

The idea behind RF Industries and Mitsubishi Electric 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.