Correlation Between Makita and Techtronic Industries

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

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

Diversification Opportunities for Makita and Techtronic Industries

-0.4

Correlation Coefficient

Makita  Techtronic Industries

Very good diversification

The 3 months correlation between Makita and Techtronic is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Makita and Techtronic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techtronic Industries and Makita 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 Makita are associated (or correlated) with Techtronic Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techtronic Industries has no effect on the direction of Makita i.e., Makita and Techtronic Industries go up and down completely randomly.

Pair Corralation between Makita and Techtronic Industries

Assuming the 90 days trading horizon Makita is expected to generate 1.05 times more return on investment than Techtronic Industries. However, Makita is 1.05 times more volatile than Techtronic Industries. It trades about 0.09 of its potential returns per unit of risk. Techtronic Industries is currently generating about -0.07 per unit of risk. If you would invest  2,932  in Makita on December 24, 2024 and sell it today you would earn a total of  340.00  from holding Makita or generate 11.6% return on investment over 90 days.

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

Makita  vs.  Techtronic Industries

Makita

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Makita are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Makita reported solid returns over the last few months and may actually be approaching a breakup point.

Techtronic Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Techtronic Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Makita and Techtronic Industries

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

The idea behind Makita and Techtronic Industries 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.