Correlation Between Daiwa House and Daito Trust

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

By analyzing existing cross correlation between Daiwa House Industry and Daito Trust Construction, you can compare the effects of market volatilities on Daiwa House and Daito Trust 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 Daiwa House with a short position of Daito Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daiwa House and Daito Trust.

Diversification Opportunities for Daiwa House and Daito Trust

0.75

Correlation Coefficient

Daiwa House  Daito Trust

Poor diversification

The 3 months correlation between Daiwa and Daito is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Daiwa House Industry and Daito Trust Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daito Trust Construction and Daiwa House 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 Daiwa House Industry are associated (or correlated) with Daito Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daito Trust Construction has no effect on the direction of Daiwa House i.e., Daiwa House and Daito Trust go up and down completely randomly.

Pair Corralation between Daiwa House and Daito Trust

Assuming the 90 days horizon Daiwa House Industry is expected to generate 0.68 times more return on investment than Daito Trust. However, Daiwa House Industry is 1.47 times less risky than Daito Trust. It trades about 0.06 of its potential returns per unit of risk. Daito Trust Construction is currently generating about 0.03 per unit of risk. If you would invest  2,197  in Daiwa House Industry on September 28, 2024 and sell it today you would earn a total of  866.00  from holding Daiwa House Industry or generate 39.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Daiwa House Industry  vs.  Daito Trust Construction

Daiwa House Industry

Risk-Adjusted Performance

0 of 100

Very Weak

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

Daito Trust Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Daiwa House and Daito Trust

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

The idea behind Daiwa House Industry and Daito Trust Construction 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.