Correlation Between ABB and Fuji Electric

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

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

Diversification Opportunities for ABB and Fuji Electric

0.91

Correlation Coefficient

ABB  Fuji Electric

Almost no diversification

The 3 months correlation between ABB and Fuji is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Fuji Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuji Electric and ABB 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 ABB are associated (or correlated) with Fuji Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuji Electric has no effect on the direction of ABB i.e., ABB and Fuji Electric go up and down completely randomly.

Pair Corralation between ABB and Fuji Electric

Assuming the 90 days horizon ABB is expected to generate 1.5 times less return on investment than Fuji Electric. But when comparing it to its historical volatility, ABB is 1.08 times less risky than Fuji Electric. It trades about 0.06 of its potential returns per unit of risk. Fuji Electric Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,086  in Fuji Electric Co on January 19, 2024 and sell it today you would earn a total of  507.00  from holding Fuji Electric Co or generate 46.69% return on investment over 90 days.

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

ABB  vs.  Fuji Electric Co

ABB

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ABB reported solid returns over the last few months and may actually be approaching a breakup point.

Fuji Electric

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fuji Electric Co are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Fuji Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABB and Fuji Electric

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

The idea behind ABB and Fuji Electric Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.