Correlation Between ITOCHU and Hitachi

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

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

Diversification Opportunities for ITOCHU and Hitachi

0.15

Correlation Coefficient

ITOCHU  Hitachi

Average diversification

The 3 months correlation between ITOCHU and Hitachi is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding ITOCHU and Hitachi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi and ITOCHU 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 ITOCHU 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 ITOCHU i.e., ITOCHU and Hitachi go up and down completely randomly.

Pair Corralation between ITOCHU and Hitachi

Assuming the 90 days horizon ITOCHU is expected to generate 1.95 times less return on investment than Hitachi. But when comparing it to its historical volatility, ITOCHU is 1.13 times less risky than Hitachi. It trades about 0.06 of its potential returns per unit of risk. Hitachi is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  952.00  in Hitachi on September 12, 2024 and sell it today you would earn a total of  1,524  from holding Hitachi or generate 160.08% return on investment over 90 days.

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

ITOCHU  vs.  Hitachi

ITOCHU

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ITOCHU are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ITOCHU 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

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hitachi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITOCHU and Hitachi

The main advantage of trading using opposite ITOCHU and Hitachi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITOCHU 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 ITOCHU 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.