Correlation Between KDDI Corp and Nippon Telegraph

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

By analyzing existing cross correlation between KDDI Corp PK and Nippon Telegraph Telephone, you can compare the effects of market volatilities on KDDI Corp and Nippon Telegraph 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 KDDI Corp with a short position of Nippon Telegraph. Check out your portfolio center. Please also check ongoing floating volatility patterns of KDDI Corp and Nippon Telegraph.

Diversification Opportunities for KDDI Corp and Nippon Telegraph

-0.02

Correlation Coefficient

KDDI Corp  Nippon Telegraph

Good diversification

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

Pair Corralation between KDDI Corp and Nippon Telegraph

Assuming the 90 days horizon KDDI Corp PK is expected to generate 0.39 times more return on investment than Nippon Telegraph. However, KDDI Corp PK is 2.57 times less risky than Nippon Telegraph. It trades about 0.17 of its potential returns per unit of risk. Nippon Telegraph Telephone is currently generating about -0.03 per unit of risk. If you would invest  1,550  in KDDI Corp PK on November 20, 2024 and sell it today you would earn a total of  91.00  from holding KDDI Corp PK or generate 5.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

KDDI Corp PK  vs.  Nippon Telegraph Telephone

KDDI Corp PK

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KDDI Corp PK are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, KDDI Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nippon Telegraph Tel

Risk-Adjusted Performance

Very Weak

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

Pair Trading with KDDI Corp and Nippon Telegraph

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

The idea behind KDDI Corp PK and Nippon Telegraph Telephone 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.