Correlation Between Mitsubishi UFJ and ELECOM CO

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

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

Diversification Opportunities for Mitsubishi UFJ and ELECOM CO

-0.38

Correlation Coefficient

Mitsubishi UFJ  ELECOM CO

Very good diversification

The 3 months correlation between Mitsubishi and ELECOM is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi UFJ Financial and ELECOM LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECOM LTD and Mitsubishi UFJ 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 UFJ Financial are associated (or correlated) with ELECOM CO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECOM LTD has no effect on the direction of Mitsubishi UFJ i.e., Mitsubishi UFJ and ELECOM CO go up and down completely randomly.

Pair Corralation between Mitsubishi UFJ and ELECOM CO

Assuming the 90 days trading horizon Mitsubishi UFJ Financial is expected to generate 1.67 times more return on investment than ELECOM CO. However, Mitsubishi UFJ is 1.67 times more volatile than ELECOM LTD. It trades about 0.15 of its potential returns per unit of risk. ELECOM LTD is currently generating about 0.02 per unit of risk. If you would invest  940.00  in Mitsubishi UFJ Financial on September 2, 2024 and sell it today you would earn a total of  170.00  from holding Mitsubishi UFJ Financial or generate 18.09% return on investment over 90 days.

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

Mitsubishi UFJ Financial  vs.  ELECOM LTD

Mitsubishi UFJ Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mitsubishi UFJ unveiled solid returns over the last few months and may actually be approaching a breakup point.

ELECOM LTD

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ELECOM LTD are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ELECOM CO is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mitsubishi UFJ and ELECOM CO

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

The idea behind Mitsubishi UFJ Financial and ELECOM 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.