Correlation Between Volvo AB and Hitachi

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

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

Diversification Opportunities for Volvo AB and Hitachi

0.37

Correlation Coefficient

Volvo AB  Hitachi

Weak diversification

The 3 months correlation between Volvo and Hitachi is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Volvo AB ser and Hitachi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi and Volvo AB 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 Volvo AB ser are associated (or correlated) with Hitachi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi has no effect on the direction of Volvo AB i.e., Volvo AB and Hitachi go up and down completely randomly.

Pair Corralation between Volvo AB and Hitachi

Assuming the 90 days horizon Volvo AB is expected to generate 49.34 times less return on investment than Hitachi. But when comparing it to its historical volatility, Volvo AB ser is 17.71 times less risky than Hitachi. It trades about 0.03 of its potential returns per unit of risk. Hitachi is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,088  in Hitachi on September 15, 2024 and sell it today you would earn a total of  437.00  from holding Hitachi or generate 20.93% return on investment over 90 days.

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

Volvo AB ser  vs.  Hitachi

Volvo AB ser

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Volvo AB ser are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Volvo AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Hitachi

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, Hitachi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Volvo AB and Hitachi

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

The idea behind Volvo AB ser and Hitachi 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.