Correlation Between Hitachi Construction and DeVry Education

Can any of the company-specific risk be diversified away by investing in both Hitachi Construction and DeVry Education 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 DeVry Education 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 DeVry Education Group, you can compare the effects of market volatilities on Hitachi Construction and DeVry Education 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 DeVry Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi Construction and DeVry Education.

Diversification Opportunities for Hitachi Construction and DeVry Education

-0.14

Correlation Coefficient

Hitachi Construction  DeVry Education

Good diversification

The 3 months correlation between Hitachi and DeVry is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and DeVry Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DeVry Education Group 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 DeVry Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DeVry Education Group has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and DeVry Education go up and down completely randomly.

Pair Corralation between Hitachi Construction and DeVry Education

Assuming the 90 days horizon Hitachi Construction is expected to generate 17.87 times less return on investment than DeVry Education. But when comparing it to its historical volatility, Hitachi Construction Machinery is 1.24 times less risky than DeVry Education. It trades about 0.01 of its potential returns per unit of risk. DeVry Education Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,320  in DeVry Education Group on September 24, 2024 and sell it today you would earn a total of  5,130  from holding DeVry Education Group or generate 154.52% return on investment over 90 days.

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

Hitachi Construction Machinery  vs.  DeVry Education Group

Hitachi Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hitachi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

DeVry Education Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DeVry Education Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, DeVry Education reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and DeVry Education

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

The idea behind Hitachi Construction Machinery and DeVry Education Group 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.