Correlation Between NSK and Toray Industries

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

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

Diversification Opportunities for NSK and Toray Industries

-0.04

Correlation Coefficient

NSK  Toray Industries

Good diversification

The 3 months correlation between NSK and Toray is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding NSK Ltd ADR and Toray Industries ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toray Industries ADR and NSK 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 NSK Ltd ADR are associated (or correlated) with Toray Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toray Industries ADR has no effect on the direction of NSK i.e., NSK and Toray Industries go up and down completely randomly.

Pair Corralation between NSK and Toray Industries

Assuming the 90 days horizon NSK Ltd ADR is expected to under-perform the Toray Industries. In addition to that, NSK is 1.43 times more volatile than Toray Industries ADR. It trades about -0.01 of its total potential returns per unit of risk. Toray Industries ADR is currently generating about 0.03 per unit of volatility. If you would invest  1,284  in Toray Industries ADR on December 1, 2024 and sell it today you would earn a total of  40.00  from holding Toray Industries ADR or generate 3.12% return on investment over 90 days.

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

NSK Ltd ADR  vs.  Toray Industries ADR

NSK Ltd ADR

Risk-Adjusted Performance

Very Weak

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

Toray Industries ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toray Industries ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Toray Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NSK and Toray Industries

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

The idea behind NSK Ltd ADR and Toray Industries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.