Correlation Between Daikin IndustriesLtd and Lixil Group

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

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

Diversification Opportunities for Daikin IndustriesLtd and Lixil Group

-0.35

Correlation Coefficient

Daikin IndustriesLtd  Lixil Group

Very good diversification

The 3 months correlation between Daikin and Lixil is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Daikin IndustriesLtd and Lixil Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lixil Group Corp 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 Lixil Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lixil Group Corp has no effect on the direction of Daikin IndustriesLtd i.e., Daikin IndustriesLtd and Lixil Group go up and down completely randomly.

Pair Corralation between Daikin IndustriesLtd and Lixil Group

Assuming the 90 days horizon Daikin IndustriesLtd is expected to generate 2.5 times more return on investment than Lixil Group. However, Daikin IndustriesLtd is 2.5 times more volatile than Lixil Group Corp. It trades about 0.01 of its potential returns per unit of risk. Lixil Group Corp is currently generating about -0.01 per unit of risk. If you would invest  13,607  in Daikin IndustriesLtd on December 8, 2024 and sell it today you would lose (1,510) from holding Daikin IndustriesLtd or give up 11.1% of portfolio value over 90 days.

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

Daikin IndustriesLtd  vs.  Lixil Group Corp

Daikin IndustriesLtd

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daikin IndustriesLtd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, Daikin IndustriesLtd may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lixil Group Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lixil Group Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Lixil Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Daikin IndustriesLtd and Lixil Group

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

The idea behind Daikin IndustriesLtd and Lixil Group Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.