Correlation Between Daikin IndustriesLtd and Inpex Corp

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

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

Diversification Opportunities for Daikin IndustriesLtd and Inpex Corp

0.76

Correlation Coefficient

Daikin IndustriesLtd  Inpex Corp

Poor diversification

The 3 months correlation between Daikin and Inpex is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Daikin IndustriesLtd and Inpex Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inpex Corp ADR and Daikin IndustriesLtd 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 Daikin IndustriesLtd are associated (or correlated) with Inpex Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inpex Corp ADR has no effect on the direction of Daikin IndustriesLtd i.e., Daikin IndustriesLtd and Inpex Corp go up and down completely randomly.

Pair Corralation between Daikin IndustriesLtd and Inpex Corp

Assuming the 90 days horizon Daikin IndustriesLtd is expected to generate 2.94 times more return on investment than Inpex Corp. However, Daikin IndustriesLtd is 2.94 times more volatile than Inpex Corp ADR. It trades about 0.01 of its potential returns per unit of risk. Inpex Corp ADR is currently generating about -0.08 per unit of risk. If you would invest  12,350  in Daikin IndustriesLtd on September 20, 2024 and sell it today you would lose (281.00) from holding Daikin IndustriesLtd or give up 2.28% of portfolio value over 90 days.

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

Daikin IndustriesLtd  vs.  Inpex Corp ADR

Daikin IndustriesLtd

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daikin IndustriesLtd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Daikin IndustriesLtd is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Inpex Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inpex 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 technical 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 Daikin IndustriesLtd and Inpex Corp

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

The idea behind Daikin IndustriesLtd and Inpex 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.