Correlation Between Alps Electric and Murata Manufacturing

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

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

Diversification Opportunities for Alps Electric and Murata Manufacturing

0.45

Correlation Coefficient

Alps Electric  Murata Manufacturing

Very weak diversification

The 3 months correlation between Alps and Murata is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Alps Electric Co and Murata Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murata Manufacturing and Alps 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 Alps Electric Co are associated (or correlated) with Murata Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murata Manufacturing has no effect on the direction of Alps Electric i.e., Alps Electric and Murata Manufacturing go up and down completely randomly.

Pair Corralation between Alps Electric and Murata Manufacturing

Assuming the 90 days horizon Alps Electric Co is expected to under-perform the Murata Manufacturing. But the pink sheet apears to be less risky and, when comparing its historical volatility, Alps Electric Co is 3.82 times less risky than Murata Manufacturing. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Murata Manufacturing Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,673  in Murata Manufacturing Co on September 22, 2024 and sell it today you would lose (160.00) from holding Murata Manufacturing Co or give up 9.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Alps Electric Co  vs.  Murata Manufacturing Co

Alps Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alps Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Alps Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Murata Manufacturing

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Murata Manufacturing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Murata Manufacturing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alps Electric and Murata Manufacturing

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

The idea behind Alps Electric Co and Murata Manufacturing Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.