Correlation Between Armstrong World and Daikin Industries

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

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

Diversification Opportunities for Armstrong World and Daikin Industries

-0.48

Correlation Coefficient

Armstrong World  Daikin Industries

Very good diversification

The 3 months correlation between Armstrong and Daikin is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and Daikin Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin Industries and Armstrong World 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 Armstrong World Industries 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 Armstrong World i.e., Armstrong World and Daikin Industries go up and down completely randomly.

Pair Corralation between Armstrong World and Daikin Industries

Considering the 90-day investment horizon Armstrong World Industries is expected to generate 0.86 times more return on investment than Daikin Industries. However, Armstrong World Industries is 1.17 times less risky than Daikin Industries. It trades about 0.09 of its potential returns per unit of risk. Daikin Industries Ltd is currently generating about -0.03 per unit of risk. If you would invest  7,249  in Armstrong World Industries on October 3, 2024 and sell it today you would earn a total of  6,884  from holding Armstrong World Industries or generate 94.96% return on investment over 90 days.

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

Armstrong World Industries  vs.  Daikin Industries Ltd

Armstrong World Indu

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Armstrong World Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Armstrong World is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

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 weak performance in the last few months, the Stock's essential 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.

Pair Trading with Armstrong World and Daikin Industries

The main advantage of trading using opposite Armstrong World and Daikin Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Armstrong World 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 Armstrong World Industries 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.