Correlation Between DAX Index and Nitto Denko

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

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

Diversification Opportunities for DAX Index and Nitto Denko

0.48

Correlation Coefficient

DAX Index  Nitto Denko

Very weak diversification

The 3 months correlation between DAX and Nitto is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Nitto Denko Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nitto Denko Corp and DAX Index 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 DAX Index are associated (or correlated) with Nitto Denko. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nitto Denko Corp has no effect on the direction of DAX Index i.e., DAX Index and Nitto Denko go up and down completely randomly.

Pair Corralation between DAX Index and Nitto Denko

Assuming the 90 days trading horizon DAX Index is expected to under-perform the Nitto Denko. But the index apears to be less risky and, when comparing its historical volatility, DAX Index is 2.14 times less risky than Nitto Denko. The index trades about -0.06 of its potential returns per unit of risk. The Nitto Denko Corp is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,520  in Nitto Denko Corp on October 9, 2024 and sell it today you would earn a total of  90.00  from holding Nitto Denko Corp or generate 5.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.12%
Values	Daily Returns

DAX Index  vs.  Nitto Denko Corp

Pair Trading with DAX Index and Nitto Denko

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

The idea behind DAX Index and Nitto Denko Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.