Correlation Between Mitsubishi Motors and Dowlais Group

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

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

Diversification Opportunities for Mitsubishi Motors and Dowlais Group

0.63

Correlation Coefficient

Mitsubishi Motors  Dowlais Group

Poor diversification

The 3 months correlation between Mitsubishi and Dowlais is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Motors Corp and Dowlais Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dowlais Group plc and Mitsubishi Motors 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 Motors Corp are associated (or correlated) with Dowlais Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dowlais Group plc has no effect on the direction of Mitsubishi Motors i.e., Mitsubishi Motors and Dowlais Group go up and down completely randomly.

Pair Corralation between Mitsubishi Motors and Dowlais Group

Assuming the 90 days horizon Mitsubishi Motors Corp is expected to generate 0.81 times more return on investment than Dowlais Group. However, Mitsubishi Motors Corp is 1.24 times less risky than Dowlais Group. It trades about -0.08 of its potential returns per unit of risk. Dowlais Group plc is currently generating about -0.1 per unit of risk. If you would invest  290.00  in Mitsubishi Motors Corp on March 22, 2024 and sell it today you would lose (10.00) from holding Mitsubishi Motors Corp or give up 3.45% of portfolio value over 90 days.

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

Mitsubishi Motors Corp  vs.  Dowlais Group plc

Mitsubishi Motors Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Motors Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Dowlais Group plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dowlais Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Mitsubishi Motors and Dowlais Group

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

The idea behind Mitsubishi Motors Corp and Dowlais Group plc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.