Correlation Between Lear and NSK

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

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

Diversification Opportunities for Lear and NSK

0.26

Correlation Coefficient

Lear  NSK

Modest diversification

The 3 months correlation between Lear and NSK is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and NSK Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NSK Ltd ADR and Lear 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 Lear Corporation are associated (or correlated) with NSK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NSK Ltd ADR has no effect on the direction of Lear i.e., Lear and NSK go up and down completely randomly.

Pair Corralation between Lear and NSK

Considering the 90-day investment horizon Lear is expected to generate 4.82 times less return on investment than NSK. But when comparing it to its historical volatility, Lear Corporation is 1.97 times less risky than NSK. It trades about 0.04 of its potential returns per unit of risk. NSK Ltd ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  807.00  in NSK Ltd ADR on December 26, 2024 and sell it today you would earn a total of  146.00  from holding NSK Ltd ADR or generate 18.09% return on investment over 90 days.

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

Lear Corp.  vs.  NSK Ltd ADR

Lear

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lear Corporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Lear is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NSK Ltd ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NSK Ltd ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, NSK showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lear and NSK

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

The idea behind Lear Corporation and NSK Ltd ADR 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.