Correlation Between AAON and Daikin Industries

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

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

Diversification Opportunities for AAON and Daikin Industries

-0.58

Correlation Coefficient

AAON  Daikin Industries

Excellent diversification

The 3 months correlation between AAON and Daikin is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding AAON Inc and Daikin Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin Industries and AAON 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 AAON Inc are associated (or correlated) with Daikin Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daikin Industries has no effect on the direction of AAON i.e., AAON and Daikin Industries go up and down completely randomly.

Pair Corralation between AAON and Daikin Industries

Given the investment horizon of 90 days AAON Inc is expected to generate 2.14 times more return on investment than Daikin Industries. However, AAON is 2.14 times more volatile than Daikin Industries Ltd. It trades about 0.09 of its potential returns per unit of risk. Daikin Industries Ltd is currently generating about -0.13 per unit of risk. If you would invest  10,975  in AAON Inc on September 21, 2024 and sell it today you would earn a total of  1,408  from holding AAON Inc or generate 12.83% return on investment over 90 days.

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

AAON Inc  vs.  Daikin Industries Ltd

AAON Inc

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAON Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AAON displayed solid returns over the last few months and may actually be approaching a breakup point.

Daikin Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daikin Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with AAON and Daikin Industries

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

The idea behind AAON Inc and Daikin Industries Ltd 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.