Correlation Between DENSO and Brembo SpA

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

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

Diversification Opportunities for DENSO and Brembo SpA

0.02

Correlation Coefficient

DENSO  Brembo SpA

Significant diversification

The 3 months correlation between DENSO and Brembo is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding DENSO and Brembo SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brembo SpA and DENSO 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 DENSO are associated (or correlated) with Brembo SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brembo SpA has no effect on the direction of DENSO i.e., DENSO and Brembo SpA go up and down completely randomly.

Pair Corralation between DENSO and Brembo SpA

Assuming the 90 days horizon DENSO is expected to generate 2.47 times less return on investment than Brembo SpA. In addition to that, DENSO is 4.02 times more volatile than Brembo SpA. It trades about 0.01 of its total potential returns per unit of risk. Brembo SpA is currently generating about 0.11 per unit of volatility. If you would invest  908.00  in Brembo SpA on December 4, 2024 and sell it today you would earn a total of  106.00  from holding Brembo SpA or generate 11.67% return on investment over 90 days.

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

DENSO  vs.  Brembo SpA

DENSO

Risk-Adjusted Performance

Very Weak

Over the last 90 days DENSO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DENSO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Brembo SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brembo SpA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Brembo SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DENSO and Brembo SpA

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

The idea behind DENSO and Brembo SpA 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.