Correlation Between Daido Steel and Tokyo Electron

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

By analyzing existing cross correlation between Daido Steel Co and Tokyo Electron Limited, you can compare the effects of market volatilities on Daido Steel and Tokyo Electron 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 Daido Steel with a short position of Tokyo Electron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daido Steel and Tokyo Electron.

Diversification Opportunities for Daido Steel and Tokyo Electron

0.63

Correlation Coefficient

Daido Steel  Tokyo Electron

Poor diversification

The 3 months correlation between Daido and Tokyo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Daido Steel Co and Tokyo Electron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron and Daido Steel 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 Daido Steel Co are associated (or correlated) with Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Daido Steel i.e., Daido Steel and Tokyo Electron go up and down completely randomly.

Pair Corralation between Daido Steel and Tokyo Electron

Assuming the 90 days horizon Daido Steel is expected to generate 2.39 times less return on investment than Tokyo Electron. But when comparing it to its historical volatility, Daido Steel Co is 1.48 times less risky than Tokyo Electron. It trades about 0.03 of its potential returns per unit of risk. Tokyo Electron Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,577  in Tokyo Electron Limited on September 12, 2024 and sell it today you would earn a total of  5,313  from holding Tokyo Electron Limited or generate 55.48% return on investment over 90 days.

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

Daido Steel Co  vs.  Tokyo Electron Limited

Daido Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daido Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Daido Steel and Tokyo Electron

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

The idea behind Daido Steel Co and Tokyo Electron Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.