Correlation Between Daikin IndustriesLtd and Quanex Building

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

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

Diversification Opportunities for Daikin IndustriesLtd and Quanex Building

0.53

Correlation Coefficient

Daikin IndustriesLtd  Quanex Building

Very weak diversification

The 3 months correlation between Daikin and Quanex is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Daikin IndustriesLtd and Quanex Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quanex Building Products 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 Quanex Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quanex Building Products has no effect on the direction of Daikin IndustriesLtd i.e., Daikin IndustriesLtd and Quanex Building go up and down completely randomly.

Pair Corralation between Daikin IndustriesLtd and Quanex Building

Assuming the 90 days horizon Daikin IndustriesLtd is expected to generate 2.33 times more return on investment than Quanex Building. However, Daikin IndustriesLtd is 2.33 times more volatile than Quanex Building Products. It trades about 0.13 of its potential returns per unit of risk. Quanex Building Products is currently generating about -0.09 per unit of risk. If you would invest  10,725  in Daikin IndustriesLtd on December 10, 2024 and sell it today you would earn a total of  1,372  from holding Daikin IndustriesLtd or generate 12.79% return on investment over 90 days.

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

Daikin IndustriesLtd  vs.  Quanex Building Products

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.

Quanex Building Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Quanex Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Daikin IndustriesLtd and Quanex Building

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

The idea behind Daikin IndustriesLtd and Quanex Building Products 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.