Correlation Between Daido Steel and New Residential

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

By analyzing existing cross correlation between Daido Steel Co and New Residential Investment, you can compare the effects of market volatilities on Daido Steel and New Residential 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 Daido Steel with a short position of New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daido Steel and New Residential.

Diversification Opportunities for Daido Steel and New Residential

0.6

Correlation Coefficient

Daido Steel  New Residential

Poor diversification

The 3 months correlation between Daido and New is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Daido Steel Co and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and Daido Steel 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 Daido Steel Co are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of Daido Steel i.e., Daido Steel and New Residential go up and down completely randomly.

Pair Corralation between Daido Steel and New Residential

Assuming the 90 days horizon Daido Steel Co is expected to generate 1.21 times more return on investment than New Residential. However, Daido Steel is 1.21 times more volatile than New Residential Investment. It trades about 0.17 of its potential returns per unit of risk. New Residential Investment is currently generating about 0.07 per unit of risk. If you would invest  670.00  in Daido Steel Co on December 21, 2024 and sell it today you would earn a total of  105.00  from holding Daido Steel Co or generate 15.67% return on investment over 90 days.

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

Daido Steel Co  vs.  New Residential Investment

Daido Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daido Steel Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Daido Steel reported solid returns over the last few months and may actually be approaching a breakup point.

New Residential Inve

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, New Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Daido Steel and New Residential

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

The idea behind Daido Steel Co and New Residential Investment 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.