Correlation Between International Flavors and Nitto Denko

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

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

Diversification Opportunities for International Flavors and Nitto Denko

0.46

Correlation Coefficient

International Flavors  Nitto Denko

Very weak diversification

The 3 months correlation between International and Nitto is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding International Flavors Fragranc 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 International Flavors 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 International Flavors Fragrances 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 International Flavors i.e., International Flavors and Nitto Denko go up and down completely randomly.

Pair Corralation between International Flavors and Nitto Denko

Considering the 90-day investment horizon International Flavors is expected to generate 12.6 times less return on investment than Nitto Denko. But when comparing it to its historical volatility, International Flavors Fragrances is 1.25 times less risky than Nitto Denko. It trades about 0.01 of its potential returns per unit of risk. Nitto Denko Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,582  in Nitto Denko Corp on September 19, 2024 and sell it today you would earn a total of  50.00  from holding Nitto Denko Corp or generate 3.16% return on investment over 90 days.

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

International Flavors Fragranc  vs.  Nitto Denko Corp

International Flavors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Flavors Fragrances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Nitto Denko Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nitto Denko Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Nitto Denko is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Flavors and Nitto Denko

The main advantage of trading using opposite International Flavors and Nitto Denko positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Flavors 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 International Flavors Fragrances 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.