Correlation Between Air Products and Nitto Denko

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

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

Diversification Opportunities for Air Products and Nitto Denko

0.22

Correlation Coefficient

Air Products  Nitto Denko

Modest diversification

The 3 months correlation between Air and Nitto is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Nitto Denko in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nitto Denko and Air Products 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 Air Products and 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 has no effect on the direction of Air Products i.e., Air Products and Nitto Denko go up and down completely randomly.

Pair Corralation between Air Products and Nitto Denko

Considering the 90-day investment horizon Air Products is expected to generate 10.16 times less return on investment than Nitto Denko. But when comparing it to its historical volatility, Air Products and is 1.25 times less risky than Nitto Denko. It trades about 0.02 of its potential returns per unit of risk. Nitto Denko is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,640  in Nitto Denko on December 27, 2024 and sell it today you would earn a total of  375.00  from holding Nitto Denko or generate 22.87% return on investment over 90 days.

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

Air Products and  vs.  Nitto Denko

Air Products

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Air Products is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Nitto Denko

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nitto Denko are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Nitto Denko reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Products and Nitto Denko

The main advantage of trading using opposite Air Products and Nitto Denko positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Products 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 Air Products and and Nitto Denko 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.