Correlation Between Hitachi Construction and Sumitomo Mitsui

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

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

Diversification Opportunities for Hitachi Construction and Sumitomo Mitsui

0.72

Correlation Coefficient

Hitachi Construction  Sumitomo Mitsui

Poor diversification

The 3 months correlation between Hitachi and Sumitomo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Sumitomo Mitsui Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Cons and Hitachi Construction 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 Hitachi Construction Machinery are associated (or correlated) with Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Cons has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Hitachi Construction and Sumitomo Mitsui

Assuming the 90 days horizon Hitachi Construction is expected to generate 1.33 times less return on investment than Sumitomo Mitsui. In addition to that, Hitachi Construction is 1.24 times more volatile than Sumitomo Mitsui Construction. It trades about 0.04 of its total potential returns per unit of risk. Sumitomo Mitsui Construction is currently generating about 0.07 per unit of volatility. If you would invest  236.00  in Sumitomo Mitsui Construction on September 10, 2024 and sell it today you would earn a total of  14.00  from holding Sumitomo Mitsui Construction or generate 5.93% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  Sumitomo Mitsui Construction

Hitachi Construction

Risk-Adjusted Performance

3 of 100

Insignificant

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

Sumitomo Mitsui Cons

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hitachi Construction and Sumitomo Mitsui

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

The idea behind Hitachi Construction Machinery and Sumitomo Mitsui Construction 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.