Correlation Between NYSE Composite and Daikin IndustriesLtd

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

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

Diversification Opportunities for NYSE Composite and Daikin IndustriesLtd

-0.33

Correlation Coefficient

NYSE Composite  Daikin IndustriesLtd

Very good diversification

The 3 months correlation between NYSE and Daikin is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Daikin IndustriesLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin IndustriesLtd and NYSE Composite 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 NYSE Composite are associated (or correlated) with Daikin IndustriesLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daikin IndustriesLtd has no effect on the direction of NYSE Composite i.e., NYSE Composite and Daikin IndustriesLtd go up and down completely randomly.

Pair Corralation between NYSE Composite and Daikin IndustriesLtd

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.16 times more return on investment than Daikin IndustriesLtd. However, NYSE Composite is 6.21 times less risky than Daikin IndustriesLtd. It trades about -0.25 of its potential returns per unit of risk. Daikin IndustriesLtd is currently generating about -0.16 per unit of risk. If you would invest  1,971,825  in NYSE Composite on September 20, 2024 and sell it today you would lose (76,004) from holding NYSE Composite or give up 3.85% of portfolio value over 90 days.

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

NYSE Composite  vs.  Daikin IndustriesLtd

Pair Trading with NYSE Composite and Daikin IndustriesLtd

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

The idea behind NYSE Composite and Daikin IndustriesLtd 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.