Correlation Between THK Co and NGK Insulators

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

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

Diversification Opportunities for THK Co and NGK Insulators

-0.43

Correlation Coefficient

THK Co  NGK Insulators

Very good diversification

The 3 months correlation between THK and NGK is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding THK Co Ltd and NGK Insulators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGK Insulators and THK Co 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 THK Co Ltd are associated (or correlated) with NGK Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGK Insulators has no effect on the direction of THK Co i.e., THK Co and NGK Insulators go up and down completely randomly.

Pair Corralation between THK Co and NGK Insulators

Assuming the 90 days horizon THK Co is expected to generate 2.0 times less return on investment than NGK Insulators. But when comparing it to its historical volatility, THK Co Ltd is 1.38 times less risky than NGK Insulators. It trades about 0.15 of its potential returns per unit of risk. NGK Insulators is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,093  in NGK Insulators on December 4, 2024 and sell it today you would earn a total of  168.00  from holding NGK Insulators or generate 15.37% return on investment over 90 days.

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

THK Co Ltd  vs.  NGK Insulators

THK Co

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in THK Co Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, THK Co may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NGK Insulators

Risk-Adjusted Performance

Very Weak

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

Pair Trading with THK Co and NGK Insulators

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

The idea behind THK Co Ltd and NGK Insulators 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.