Correlation Between China Health and Mitsubishi Electric

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

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

Diversification Opportunities for China Health and Mitsubishi Electric

-0.17

Correlation Coefficient

China Health  Mitsubishi Electric

Good diversification

The 3 months correlation between China and Mitsubishi is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding China Health Management and Mitsubishi Electric Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Electric Corp and China Health 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 China Health Management 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 Corp has no effect on the direction of China Health i.e., China Health and Mitsubishi Electric go up and down completely randomly.

Pair Corralation between China Health and Mitsubishi Electric

Given the investment horizon of 90 days China Health Management is expected to generate 2.94 times more return on investment than Mitsubishi Electric. However, China Health is 2.94 times more volatile than Mitsubishi Electric Corp. It trades about 0.03 of its potential returns per unit of risk. Mitsubishi Electric Corp is currently generating about 0.04 per unit of risk. If you would invest  0.41  in China Health Management on September 22, 2024 and sell it today you would lose (0.01) from holding China Health Management or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

China Health Management  vs.  Mitsubishi Electric Corp

China Health Management

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Health Management are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, China Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mitsubishi Electric Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Electric Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Mitsubishi Electric is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Health and Mitsubishi Electric

The main advantage of trading using opposite China Health and Mitsubishi Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Health 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 China Health Management and Mitsubishi Electric Corp 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.