Correlation Between Associated British and Kikkoman Corp

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

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

Diversification Opportunities for Associated British and Kikkoman Corp

0.82

Correlation Coefficient

Associated British  Kikkoman Corp

Very poor diversification

The 3 months correlation between Associated and Kikkoman is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Kikkoman Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kikkoman Corp ADR and Associated British 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 Associated British Foods are associated (or correlated) with Kikkoman Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kikkoman Corp ADR has no effect on the direction of Associated British i.e., Associated British and Kikkoman Corp go up and down completely randomly.

Pair Corralation between Associated British and Kikkoman Corp

Assuming the 90 days horizon Associated British Foods is expected to under-perform the Kikkoman Corp. In addition to that, Associated British is 1.77 times more volatile than Kikkoman Corp ADR. It trades about -0.2 of its total potential returns per unit of risk. Kikkoman Corp ADR is currently generating about -0.2 per unit of volatility. If you would invest  2,343  in Kikkoman Corp ADR on October 26, 2024 and sell it today you would lose (267.00) from holding Kikkoman Corp ADR or give up 11.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Associated British Foods  vs.  Kikkoman Corp ADR

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Kikkoman Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kikkoman Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic 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 Associated British and Kikkoman Corp

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

The idea behind Associated British Foods and Kikkoman Corp ADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.