Correlation Between Murata Manufacturing and American Aires

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

By analyzing existing cross correlation between Murata Manufacturing and American Aires, you can compare the effects of market volatilities on Murata Manufacturing and American Aires 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 American Aires. Check out your portfolio center. Please also check ongoing floating volatility patterns of Murata Manufacturing and American Aires.

Diversification Opportunities for Murata Manufacturing and American Aires

0.84

Correlation Coefficient

Murata Manufacturing  American Aires

Very poor diversification

The 3 months correlation between Murata and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Murata Manufacturing and American Aires in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Aires 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 are associated (or correlated) with American Aires. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Aires has no effect on the direction of Murata Manufacturing i.e., Murata Manufacturing and American Aires go up and down completely randomly.

Pair Corralation between Murata Manufacturing and American Aires

Assuming the 90 days horizon Murata Manufacturing is expected to generate 0.3 times more return on investment than American Aires. However, Murata Manufacturing is 3.34 times less risky than American Aires. It trades about -0.13 of its potential returns per unit of risk. American Aires is currently generating about -0.16 per unit of risk. If you would invest  929.00  in Murata Manufacturing on September 18, 2024 and sell it today you would lose (130.00) from holding Murata Manufacturing or give up 13.99% of portfolio value over 90 days.

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

Murata Manufacturing  vs.  American Aires

Murata Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Murata Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

American Aires

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Aires has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady 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.

Pair Trading with Murata Manufacturing and American Aires

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

The idea behind Murata Manufacturing and American Aires 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.