Correlation Between Fujitsu and NEC

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

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

Diversification Opportunities for Fujitsu and NEC

0.8

Correlation Coefficient

Fujitsu  NEC

Very poor diversification

The 3 months correlation between Fujitsu and NEC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Fujitsu Ltd ADR and NEC Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEC Corporation and Fujitsu 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 Fujitsu Ltd ADR are associated (or correlated) with NEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEC Corporation has no effect on the direction of Fujitsu i.e., Fujitsu and NEC go up and down completely randomly.

Pair Corralation between Fujitsu and NEC

Assuming the 90 days horizon Fujitsu is expected to generate 2.1 times less return on investment than NEC. But when comparing it to its historical volatility, Fujitsu Ltd ADR is 2.33 times less risky than NEC. It trades about 0.11 of its potential returns per unit of risk. NEC Corporation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,647  in NEC Corporation on December 27, 2024 and sell it today you would earn a total of  1,958  from holding NEC Corporation or generate 22.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Fujitsu Ltd ADR  vs.  NEC Corp.

Fujitsu Ltd ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fujitsu Ltd ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Fujitsu showed solid returns over the last few months and may actually be approaching a breakup point.

NEC Corporation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEC Corporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NEC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fujitsu and NEC

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

The idea behind Fujitsu Ltd ADR and NEC Corporation 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.