Correlation Between Toray Industries and Nitto Denko

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

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

Diversification Opportunities for Toray Industries and Nitto Denko

0.05

Correlation Coefficient

Toray Industries  Nitto Denko

Significant diversification

The 3 months correlation between Toray and Nitto is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Toray Industries ADR 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 Toray Industries 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 Toray Industries ADR 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 Toray Industries i.e., Toray Industries and Nitto Denko go up and down completely randomly.

Pair Corralation between Toray Industries and Nitto Denko

Assuming the 90 days horizon Toray Industries ADR is expected to generate 2.16 times more return on investment than Nitto Denko. However, Toray Industries is 2.16 times more volatile than Nitto Denko Corp. It trades about 0.25 of its potential returns per unit of risk. Nitto Denko Corp is currently generating about -0.03 per unit of risk. If you would invest  1,074  in Toray Industries ADR on September 2, 2024 and sell it today you would earn a total of  198.00  from holding Toray Industries ADR or generate 18.44% return on investment over 90 days.

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

Toray Industries ADR  vs.  Nitto Denko Corp

Toray Industries ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toray Industries ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward indicators, Toray Industries showed solid returns over the last few months and may actually be approaching a breakup point.

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 Toray Industries and Nitto Denko

The main advantage of trading using opposite Toray Industries and Nitto Denko positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toray Industries 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 Toray Industries ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.