Correlation Between Vulcan Materials and Daikin IndustriesLtd

Can any of the company-specific risk be diversified away by investing in both Vulcan Materials and Daikin IndustriesLtd 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 Vulcan Materials and Daikin IndustriesLtd into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vulcan Materials and Daikin IndustriesLtd, you can compare the effects of market volatilities on Vulcan Materials and Daikin IndustriesLtd 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 Vulcan Materials with a short position of Daikin IndustriesLtd. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Materials and Daikin IndustriesLtd.

Diversification Opportunities for Vulcan Materials and Daikin IndustriesLtd

0.09

Correlation Coefficient

Vulcan Materials  Daikin IndustriesLtd

Significant diversification

The 3 months correlation between Vulcan and Daikin is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Daikin IndustriesLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin IndustriesLtd and Vulcan Materials 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 Vulcan Materials are associated (or correlated) with Daikin IndustriesLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daikin IndustriesLtd has no effect on the direction of Vulcan Materials i.e., Vulcan Materials and Daikin IndustriesLtd go up and down completely randomly.

Pair Corralation between Vulcan Materials and Daikin IndustriesLtd

Assuming the 90 days horizon Vulcan Materials is expected to under-perform the Daikin IndustriesLtd. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 1.4 times less risky than Daikin IndustriesLtd. The stock trades about -0.49 of its potential returns per unit of risk. The Daikin IndustriesLtd is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  11,640  in Daikin IndustriesLtd on October 1, 2024 and sell it today you would lose (455.00) from holding Daikin IndustriesLtd or give up 3.91% of portfolio value over 90 days.

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

Vulcan Materials  vs.  Daikin IndustriesLtd

Vulcan Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Vulcan Materials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Daikin IndustriesLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daikin IndustriesLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Vulcan Materials and Daikin IndustriesLtd

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

The idea behind Vulcan Materials and Daikin IndustriesLtd 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.