Correlation Between Ricoh and Kawasaki Heavy

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

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

Diversification Opportunities for Ricoh and Kawasaki Heavy

0.52

Correlation Coefficient

Ricoh  Kawasaki Heavy

Very weak diversification

The 3 months correlation between Ricoh and Kawasaki is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ricoh Company and Kawasaki Heavy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kawasaki Heavy Industries and Ricoh 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 Ricoh Company are associated (or correlated) with Kawasaki Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kawasaki Heavy Industries has no effect on the direction of Ricoh i.e., Ricoh and Kawasaki Heavy go up and down completely randomly.

Pair Corralation between Ricoh and Kawasaki Heavy

Assuming the 90 days horizon Ricoh Company is expected to generate 1.11 times more return on investment than Kawasaki Heavy. However, Ricoh is 1.11 times more volatile than Kawasaki Heavy Industries. It trades about 0.11 of its potential returns per unit of risk. Kawasaki Heavy Industries is currently generating about 0.07 per unit of risk. If you would invest  1,100  in Ricoh Company on September 18, 2024 and sell it today you would earn a total of  103.00  from holding Ricoh Company or generate 9.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Ricoh Company  vs.  Kawasaki Heavy Industries

Ricoh Company

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ricoh Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Ricoh showed solid returns over the last few months and may actually be approaching a breakup point.

Kawasaki Heavy Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kawasaki Heavy Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Kawasaki Heavy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ricoh and Kawasaki Heavy

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

The idea behind Ricoh Company and Kawasaki Heavy Industries 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.