Correlation Between Sun Hung and Mitsubishi Estate

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

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

Diversification Opportunities for Sun Hung and Mitsubishi Estate

-0.8

Correlation Coefficient

Sun Hung  Mitsubishi Estate

Pay attention - limited upside

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

Pair Corralation between Sun Hung and Mitsubishi Estate

Assuming the 90 days horizon Sun Hung Kai is expected to under-perform the Mitsubishi Estate. But the stock apears to be less risky and, when comparing its historical volatility, Sun Hung Kai is 1.37 times less risky than Mitsubishi Estate. The stock trades about -0.14 of its potential returns per unit of risk. The Mitsubishi Estate Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,290  in Mitsubishi Estate Co on September 23, 2024 and sell it today you would earn a total of  10.00  from holding Mitsubishi Estate Co or generate 0.78% return on investment over 90 days.

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

Sun Hung Kai  vs.  Mitsubishi Estate Co

Sun Hung Kai

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sun Hung reported solid returns over the last few months and may actually be approaching a breakup point.

Mitsubishi Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Estate Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mitsubishi Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sun Hung and Mitsubishi Estate

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

The idea behind Sun Hung Kai and Mitsubishi Estate Co 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.