Correlation Between Dai Nippon and Monotaro

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

By analyzing existing cross correlation between Dai Nippon Printing and Monotaro Co, you can compare the effects of market volatilities on Dai Nippon and Monotaro 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 Dai Nippon with a short position of Monotaro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dai Nippon and Monotaro.

Diversification Opportunities for Dai Nippon and Monotaro

-0.5

Correlation Coefficient

Dai Nippon  Monotaro

Very good diversification

The 3 months correlation between Dai and Monotaro is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dai Nippon Printing and Monotaro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monotaro and Dai Nippon 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 Dai Nippon Printing are associated (or correlated) with Monotaro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monotaro has no effect on the direction of Dai Nippon i.e., Dai Nippon and Monotaro go up and down completely randomly.

Pair Corralation between Dai Nippon and Monotaro

Assuming the 90 days horizon Dai Nippon Printing is expected to generate 1.14 times more return on investment than Monotaro. However, Dai Nippon is 1.14 times more volatile than Monotaro Co. It trades about -0.11 of its potential returns per unit of risk. Monotaro Co is currently generating about -0.29 per unit of risk. If you would invest  736.00  in Dai Nippon Printing on October 11, 2024 and sell it today you would lose (36.00) from holding Dai Nippon Printing or give up 4.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Dai Nippon Printing  vs.  Monotaro Co

Dai Nippon Printing

Risk-Adjusted Performance

0 of 100

Very Weak

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

Monotaro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dai Nippon and Monotaro

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

The idea behind Dai Nippon Printing and Monotaro Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.