Correlation Between Daikin Industries and Kingspan Group

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

By analyzing existing cross correlation between Daikin Industries Ltd and Kingspan Group PLC, you can compare the effects of market volatilities on Daikin Industries and Kingspan 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 Industries with a short position of Kingspan Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daikin Industries and Kingspan Group.

Diversification Opportunities for Daikin Industries and Kingspan Group

-0.14

Correlation Coefficient

Daikin Industries  Kingspan Group

Good diversification

The 3 months correlation between Daikin and Kingspan is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Daikin Industries Ltd and Kingspan Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingspan Group PLC and Daikin Industries 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 Industries Ltd are associated (or correlated) with Kingspan Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingspan Group PLC has no effect on the direction of Daikin Industries i.e., Daikin Industries and Kingspan Group go up and down completely randomly.

Pair Corralation between Daikin Industries and Kingspan Group

Assuming the 90 days horizon Daikin Industries Ltd is expected to under-perform the Kingspan Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Daikin Industries Ltd is 1.91 times less risky than Kingspan Group. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Kingspan Group PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,275  in Kingspan Group PLC on December 30, 2024 and sell it today you would earn a total of  1,021  from holding Kingspan Group PLC or generate 14.03% return on investment over 90 days.

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

Daikin Industries Ltd  vs.  Kingspan Group PLC

Daikin Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Daikin Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Daikin Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kingspan Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kingspan Group PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Kingspan Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daikin Industries and Kingspan Group

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

The idea behind Daikin Industries Ltd and Kingspan Group PLC 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.