Correlation Between TDK and Murata Manufacturing

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

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

Diversification Opportunities for TDK and Murata Manufacturing

0.04

Correlation Coefficient

TDK  Murata Manufacturing

Significant diversification

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

Pair Corralation between TDK and Murata Manufacturing

Assuming the 90 days horizon TDK Corporation is expected to generate 1.27 times more return on investment than Murata Manufacturing. However, TDK is 1.27 times more volatile than Murata Manufacturing Co. It trades about -0.01 of its potential returns per unit of risk. Murata Manufacturing Co is currently generating about -0.13 per unit of risk. If you would invest  1,237  in TDK Corporation on September 2, 2024 and sell it today you would lose (37.00) from holding TDK Corporation or give up 2.99% of portfolio value over 90 days.

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

TDK Corp.  vs.  Murata Manufacturing Co

TDK Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TDK Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TDK is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Murata Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Murata Manufacturing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with TDK and Murata Manufacturing

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

The idea behind TDK Corporation and Murata Manufacturing Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.