Correlation Between Monotaro and Daiwa House

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

By analyzing existing cross correlation between Monotaro Co and Daiwa House Industry, you can compare the effects of market volatilities on Monotaro and Daiwa House 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 Daiwa House. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monotaro and Daiwa House.

Diversification Opportunities for Monotaro and Daiwa House

0.74

Correlation Coefficient

Monotaro  Daiwa House

Poor diversification

The 3 months correlation between Monotaro and Daiwa is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Monotaro Co and Daiwa House Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiwa House Industry 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 Daiwa House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiwa House Industry has no effect on the direction of Monotaro i.e., Monotaro and Daiwa House go up and down completely randomly.

Pair Corralation between Monotaro and Daiwa House

Assuming the 90 days horizon Monotaro Co is expected to under-perform the Daiwa House. In addition to that, Monotaro is 1.94 times more volatile than Daiwa House Industry. It trades about -0.29 of its total potential returns per unit of risk. Daiwa House Industry is currently generating about -0.18 per unit of volatility. If you would invest  3,106  in Daiwa House Industry on October 11, 2024 and sell it today you would lose (107.00) from holding Daiwa House Industry or give up 3.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Monotaro Co  vs.  Daiwa House Industry

Monotaro

Risk-Adjusted Performance

0 of 100

Very Weak

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

Daiwa House Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daiwa House Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Daiwa House 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 Daiwa House

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

The idea behind Monotaro Co and Daiwa House Industry 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.