Correlation Between NTT Data and NEC

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

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

Diversification Opportunities for NTT Data and NEC

0.31

Correlation Coefficient

NTT Data  NEC

Weak diversification

The 3 months correlation between NTT and NEC is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding NTT Data Corp and NEC Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEC Corporation and NTT Data 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 NTT Data Corp are associated (or correlated) with NEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEC Corporation has no effect on the direction of NTT Data i.e., NTT Data and NEC go up and down completely randomly.

Pair Corralation between NTT Data and NEC

Assuming the 90 days horizon NTT Data Corp is expected to under-perform the NEC. But the pink sheet apears to be less risky and, when comparing its historical volatility, NTT Data Corp is 2.21 times less risky than NEC. The pink sheet trades about -0.01 of its potential returns per unit of risk. The NEC Corporation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,647  in NEC Corporation on December 26, 2024 and sell it today you would earn a total of  1,958  from holding NEC Corporation or generate 22.64% return on investment over 90 days.

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

NTT Data Corp  vs.  NEC Corp.

NTT Data Corp

Risk-Adjusted Performance

Very Weak

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

NEC Corporation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEC Corporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NEC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NTT Data and NEC

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

The idea behind NTT Data Corp and NEC Corporation 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.