Correlation Between Mitsubishi Heavy and Polar Power

Can any of the company-specific risk be diversified away by investing in both Mitsubishi Heavy and Polar Power 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 Polar Power 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 Polar Power, you can compare the effects of market volatilities on Mitsubishi Heavy and Polar Power 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 Polar Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsubishi Heavy and Polar Power.

Diversification Opportunities for Mitsubishi Heavy and Polar Power

-0.19

Correlation Coefficient

Mitsubishi Heavy  Polar Power

Good diversification

The 3 months correlation between Mitsubishi and Polar is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Heavy Industries and Polar Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polar Power 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 Polar Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polar Power has no effect on the direction of Mitsubishi Heavy i.e., Mitsubishi Heavy and Polar Power go up and down completely randomly.

Pair Corralation between Mitsubishi Heavy and Polar Power

Assuming the 90 days horizon Mitsubishi Heavy Industries is expected to generate 0.51 times more return on investment than Polar Power. However, Mitsubishi Heavy Industries is 1.97 times less risky than Polar Power. It trades about 0.09 of its potential returns per unit of risk. Polar Power is currently generating about -0.17 per unit of risk. If you would invest  883.00  in Mitsubishi Heavy Industries on February 5, 2024 and sell it today you would earn a total of  41.00  from holding Mitsubishi Heavy Industries or generate 4.64% return on investment over 90 days.

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

Mitsubishi Heavy Industries  vs.  Polar Power

Mitsubishi Heavy Ind

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Heavy Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Mitsubishi Heavy reported solid returns over the last few months and may actually be approaching a breakup point.

Polar Power

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Polar Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Polar Power sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mitsubishi Heavy and Polar Power

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

The idea behind Mitsubishi Heavy Industries and Polar Power 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.