Correlation Between Murata Manufacturing and Alps Electric

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

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

Diversification Opportunities for Murata Manufacturing and Alps Electric

0.45

Correlation Coefficient

Murata Manufacturing  Alps Electric

Very weak diversification

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

Pair Corralation between Murata Manufacturing and Alps Electric

Assuming the 90 days horizon Murata Manufacturing Co is expected to generate 6.3 times more return on investment than Alps Electric. However, Murata Manufacturing is 6.3 times more volatile than Alps Electric Co. It trades about 0.11 of its potential returns per unit of risk. Alps Electric Co is currently generating about 0.04 per unit of risk. If you would invest  1,555  in Murata Manufacturing Co on September 22, 2024 and sell it today you would earn a total of  198.00  from holding Murata Manufacturing Co or generate 12.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Murata Manufacturing Co  vs.  Alps Electric Co

Murata Manufacturing

Risk-Adjusted Performance

3 of 100

Insignificant

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

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.

Pair Trading with Murata Manufacturing and Alps Electric

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

The idea behind Murata Manufacturing Co and Alps Electric 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.