Correlation Between Monotaro and Daito Trust

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

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

Diversification Opportunities for Monotaro and Daito Trust

-0.51

Correlation Coefficient

Monotaro  Daito Trust

Excellent diversification

The 3 months correlation between Monotaro and Daito is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Monotaro Co and Daito Trust Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daito Trust Construction and Monotaro 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 Monotaro Co are associated (or correlated) with Daito Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daito Trust Construction has no effect on the direction of Monotaro i.e., Monotaro and Daito Trust go up and down completely randomly.

Pair Corralation between Monotaro and Daito Trust

Assuming the 90 days horizon Monotaro Co is expected to generate 1.5 times more return on investment than Daito Trust. However, Monotaro is 1.5 times more volatile than Daito Trust Construction. It trades about 0.05 of its potential returns per unit of risk. Daito Trust Construction is currently generating about -0.06 per unit of risk. If you would invest  1,749  in Monotaro Co on December 20, 2024 and sell it today you would earn a total of  90.00  from holding Monotaro Co or generate 5.15% return on investment over 90 days.

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

Monotaro Co  vs.  Daito Trust Construction

Monotaro

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Monotaro Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Monotaro may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Daito Trust Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Daito Trust Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Daito Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Monotaro and Daito Trust

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

The idea behind Monotaro Co and Daito Trust Construction 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.