Correlation Between Mitsubishi Electric and ABB

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

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

Diversification Opportunities for Mitsubishi Electric and ABB

0.75

Correlation Coefficient

Mitsubishi Electric  ABB

Poor diversification

The 3 months correlation between Mitsubishi and ABB is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Electric Corp and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Mitsubishi Electric 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 Electric Corp are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Mitsubishi Electric i.e., Mitsubishi Electric and ABB go up and down completely randomly.

Pair Corralation between Mitsubishi Electric and ABB

Assuming the 90 days horizon Mitsubishi Electric Corp is expected to generate 1.21 times more return on investment than ABB. However, Mitsubishi Electric is 1.21 times more volatile than ABB. It trades about 0.29 of its potential returns per unit of risk. ABB is currently generating about 0.15 per unit of risk. If you would invest  3,154  in Mitsubishi Electric Corp on February 5, 2024 and sell it today you would earn a total of  550.00  from holding Mitsubishi Electric Corp or generate 17.44% return on investment over 90 days.

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

Mitsubishi Electric Corp  vs.  ABB

Mitsubishi Electric Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Electric Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Mitsubishi Electric showed solid returns over the last few months and may actually be approaching a breakup point.

ABB

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 13 (%) 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.

Pair Trading with Mitsubishi Electric and ABB

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

The idea behind Mitsubishi Electric Corp and ABB 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.