Correlation Between Akzo Nobel and Nitto Denko

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

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

Diversification Opportunities for Akzo Nobel and Nitto Denko

0.2

Correlation Coefficient

Akzo Nobel  Nitto Denko

Modest diversification

The 3 months correlation between Akzo and Nitto is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Akzo Nobel NV 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 Akzo Nobel 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 Akzo Nobel NV 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 Akzo Nobel i.e., Akzo Nobel and Nitto Denko go up and down completely randomly.

Pair Corralation between Akzo Nobel and Nitto Denko

Assuming the 90 days horizon Akzo Nobel is expected to generate 1.88 times less return on investment than Nitto Denko. In addition to that, Akzo Nobel is 1.46 times more volatile than Nitto Denko Corp. It trades about 0.08 of its total potential returns per unit of risk. Nitto Denko Corp is currently generating about 0.22 per unit of volatility. If you would invest  1,589  in Nitto Denko Corp on November 28, 2024 and sell it today you would earn a total of  385.00  from holding Nitto Denko Corp or generate 24.23% return on investment over 90 days.

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

Akzo Nobel NV  vs.  Nitto Denko Corp

Akzo Nobel NV

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Akzo Nobel NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Akzo Nobel reported solid returns over the last few months and may actually be approaching a breakup point.

Nitto Denko Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nitto Denko Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward-looking signals, Nitto Denko showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Akzo Nobel and Nitto Denko

The main advantage of trading using opposite Akzo Nobel and Nitto Denko positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Akzo Nobel 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 Akzo Nobel NV 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.