Correlation Between AB SKF and Nitto Denko

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

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

Diversification Opportunities for AB SKF and Nitto Denko

0.32

Correlation Coefficient

AB SKF  Nitto Denko

Weak diversification

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

Pair Corralation between AB SKF and Nitto Denko

Assuming the 90 days horizon AB SKF is expected to generate 1.17 times less return on investment than Nitto Denko. But when comparing it to its historical volatility, AB SKF is 1.28 times less risky than Nitto Denko. It trades about 0.03 of its potential returns per unit of risk. Nitto Denko Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. 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

AB SKF  vs.  Nitto Denko Corp

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.

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.

Pair Trading with AB SKF and Nitto Denko

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

The idea behind AB SKF and Nitto Denko 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.