Correlation Between Mitsubishi Materials and Yakult Honsha

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

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

Diversification Opportunities for Mitsubishi Materials and Yakult Honsha

0.69

Correlation Coefficient

Mitsubishi Materials  Yakult Honsha

Poor diversification

The 3 months correlation between Mitsubishi and Yakult is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Materials and Yakult Honsha CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yakult Honsha CoLtd and Mitsubishi Materials 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 Mitsubishi Materials are associated (or correlated) with Yakult Honsha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yakult Honsha CoLtd has no effect on the direction of Mitsubishi Materials i.e., Mitsubishi Materials and Yakult Honsha go up and down completely randomly.

Pair Corralation between Mitsubishi Materials and Yakult Honsha

Assuming the 90 days trading horizon Mitsubishi Materials is expected to generate 6.02 times less return on investment than Yakult Honsha. But when comparing it to its historical volatility, Mitsubishi Materials is 1.47 times less risky than Yakult Honsha. It trades about 0.01 of its potential returns per unit of risk. Yakult Honsha CoLtd is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,930  in Yakult Honsha CoLtd on September 13, 2024 and sell it today you would earn a total of  40.00  from holding Yakult Honsha CoLtd or generate 2.07% return on investment over 90 days.

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

Mitsubishi Materials  vs.  Yakult Honsha CoLtd

Mitsubishi Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Mitsubishi Materials is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Yakult Honsha CoLtd

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Yakult Honsha CoLtd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Yakult Honsha is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mitsubishi Materials and Yakult Honsha

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

The idea behind Mitsubishi Materials and Yakult Honsha CoLtd 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.