Correlation Between Culp and Toray Industries

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

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

Diversification Opportunities for Culp and Toray Industries

-0.11

Correlation Coefficient

Culp  Toray Industries

Good diversification

The 3 months correlation between Culp and Toray is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Culp Inc and Toray Industries ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toray Industries ADR and Culp 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 Culp Inc are associated (or correlated) with Toray Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toray Industries ADR has no effect on the direction of Culp i.e., Culp and Toray Industries go up and down completely randomly.

Pair Corralation between Culp and Toray Industries

Given the investment horizon of 90 days Culp Inc is expected to generate 2.69 times more return on investment than Toray Industries. However, Culp is 2.69 times more volatile than Toray Industries ADR. It trades about 0.08 of its potential returns per unit of risk. Toray Industries ADR is currently generating about 0.16 per unit of risk. If you would invest  532.00  in Culp Inc on October 20, 2024 and sell it today you would earn a total of  15.00  from holding Culp Inc or generate 2.82% return on investment over 90 days.

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

Culp Inc  vs.  Toray Industries ADR

Culp Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Culp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, Culp is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Toray Industries ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toray Industries ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Toray Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Culp and Toray Industries

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

The idea behind Culp Inc and Toray Industries 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.