Correlation Between Hitachi and Swire Pacific

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

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

Diversification Opportunities for Hitachi and Swire Pacific

0.15

Correlation Coefficient

Hitachi  Swire Pacific

Average diversification

The 3 months correlation between Hitachi and Swire is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Ltd ADR and Swire Pacific Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific and Hitachi 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 Ltd ADR are associated (or correlated) with Swire Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Pacific has no effect on the direction of Hitachi i.e., Hitachi and Swire Pacific go up and down completely randomly.

Pair Corralation between Hitachi and Swire Pacific

Assuming the 90 days horizon Hitachi Ltd ADR is expected to generate 0.75 times more return on investment than Swire Pacific. However, Hitachi Ltd ADR is 1.33 times less risky than Swire Pacific. It trades about 0.04 of its potential returns per unit of risk. Swire Pacific Ltd is currently generating about 0.02 per unit of risk. If you would invest  4,789  in Hitachi Ltd ADR on September 3, 2024 and sell it today you would earn a total of  239.00  from holding Hitachi Ltd ADR or generate 4.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Hitachi Ltd ADR  vs.  Swire Pacific Ltd

Hitachi Ltd ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Ltd ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Hitachi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Swire Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Swire Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hitachi and Swire Pacific

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

The idea behind Hitachi Ltd ADR and Swire Pacific Ltd 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.