Correlation Between Arkema SA and Nitto Denko

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

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

Diversification Opportunities for Arkema SA and Nitto Denko

0.38

Correlation Coefficient

Arkema SA  Nitto Denko

Weak diversification

The 3 months correlation between Arkema and Nitto is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Arkema SA 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 Arkema SA 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 Arkema SA 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 Arkema SA i.e., Arkema SA and Nitto Denko go up and down completely randomly.

Pair Corralation between Arkema SA and Nitto Denko

Assuming the 90 days horizon Arkema SA ADR is expected to generate 0.82 times more return on investment than Nitto Denko. However, Arkema SA ADR is 1.22 times less risky than Nitto Denko. It trades about 0.33 of its potential returns per unit of risk. Nitto Denko Corp is currently generating about 0.19 per unit of risk. If you would invest  7,782  in Arkema SA ADR on November 19, 2024 and sell it today you would earn a total of  1,056  from holding Arkema SA ADR or generate 13.57% return on investment over 90 days.

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

Arkema SA ADR  vs.  Nitto Denko Corp

Arkema SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arkema SA ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Arkema SA may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Nitto Denko Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nitto Denko Corp are ranked lower than 14 (%) 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 Arkema SA and Nitto Denko

The main advantage of trading using opposite Arkema SA and Nitto Denko positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arkema SA 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 Arkema SA 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.