Correlation Between KDDI Corp and Softbank Group

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

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

Diversification Opportunities for KDDI Corp and Softbank Group

-0.29

Correlation Coefficient

KDDI Corp  Softbank Group

Very good diversification

The 3 months correlation between KDDI and Softbank is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding KDDI Corp PK and Softbank Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Softbank Group Corp and KDDI Corp 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 KDDI Corp PK are associated (or correlated) with Softbank Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Softbank Group Corp has no effect on the direction of KDDI Corp i.e., KDDI Corp and Softbank Group go up and down completely randomly.

Pair Corralation between KDDI Corp and Softbank Group

Assuming the 90 days horizon KDDI Corp PK is expected to under-perform the Softbank Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, KDDI Corp PK is 2.1 times less risky than Softbank Group. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Softbank Group Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,971  in Softbank Group Corp on September 12, 2024 and sell it today you would lose (46.00) from holding Softbank Group Corp or give up 0.77% of portfolio value over 90 days.

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

KDDI Corp PK  vs.  Softbank Group Corp

KDDI Corp PK

Risk-Adjusted Performance

0 of 100

Very Weak

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

Softbank Group Corp

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with KDDI Corp and Softbank Group

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

The idea behind KDDI Corp PK and Softbank Group Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.