Correlation Between Mitsubishi Heavy and General Electric

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Can any of the company-specific risk be diversified away by investing in both Mitsubishi Heavy and General 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 Mitsubishi Heavy and General Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mitsubishi Heavy Industries and General Electric, you can compare the effects of market volatilities on Mitsubishi Heavy and General 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 Mitsubishi Heavy with a short position of General Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsubishi Heavy and General Electric.

Diversification Opportunities for Mitsubishi Heavy and General Electric

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Mitsubishi and General is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Heavy Industries and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric and Mitsubishi Heavy 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 Heavy Industries are associated (or correlated) with General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Mitsubishi Heavy i.e., Mitsubishi Heavy and General Electric go up and down completely randomly.

Pair Corralation between Mitsubishi Heavy and General Electric

Assuming the 90 days horizon Mitsubishi Heavy Industries is expected to under-perform the General Electric. In addition to that, Mitsubishi Heavy is 12.27 times more volatile than General Electric. It trades about -0.17 of its total potential returns per unit of risk. General Electric is currently generating about 0.47 per unit of volatility. If you would invest  15,399  in General Electric on December 29, 2023 and sell it today you would earn a total of  2,613  from holding General Electric or generate 16.97% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

Mitsubishi Heavy Industries  vs.  General Electric

 Performance 
       Timeline  
Mitsubishi Heavy Ind 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

35 of 100

 
Low
 
High
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

Mitsubishi Heavy and General Electric Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mitsubishi Heavy and General Electric

The main advantage of trading using opposite Mitsubishi Heavy and General Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsubishi Heavy position performs unexpectedly, General 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 General Electric will offset losses from the drop in General Electric's long position.
The idea behind Mitsubishi Heavy Industries and General Electric 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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