Correlation Between Nitto Denko and AB SKF

Can any of the company-specific risk be diversified away by investing in both Nitto Denko and AB SKF 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 Nitto Denko and AB SKF into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Nitto Denko and AB SKF

0.32

Correlation Coefficient

Nitto Denko  AB SKF

Weak diversification

The 3 months correlation between Nitto and SKFRY is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Nitto Denko Corp and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF and Nitto Denko 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 Nitto Denko Corp are associated (or correlated) with AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Nitto Denko i.e., Nitto Denko and AB SKF go up and down completely randomly.

Pair Corralation between Nitto Denko and AB SKF

Assuming the 90 days horizon Nitto Denko Corp is expected to generate 1.28 times more return on investment than AB SKF. However, Nitto Denko is 1.28 times more volatile than AB SKF. It trades about 0.03 of its potential returns per unit of risk. AB SKF is currently generating about 0.03 per unit of risk. If you would invest  1,452  in Nitto Denko Corp on September 14, 2024 and sell it today you would earn a total of  191.00  from holding Nitto Denko Corp or generate 13.15% return on investment over 90 days.

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

Nitto Denko Corp  vs.  AB SKF

Nitto Denko Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

AB SKF

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, AB SKF may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nitto Denko and AB SKF

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

The idea behind Nitto Denko Corp and AB SKF 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.