Correlation Between Toray Industries and NSK

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

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

Diversification Opportunities for Toray Industries and NSK

-0.04

Correlation Coefficient

Toray Industries  NSK

Good diversification

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

Pair Corralation between Toray Industries and NSK

Assuming the 90 days horizon Toray Industries ADR is expected to generate 0.7 times more return on investment than NSK. However, Toray Industries ADR is 1.43 times less risky than NSK. It trades about 0.03 of its potential returns per unit of risk. NSK Ltd ADR is currently generating about -0.01 per unit of risk. 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

Toray Industries ADR  vs.  NSK Ltd ADR

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.

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.

Pair Trading with Toray Industries and NSK

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

The idea behind Toray Industries ADR and NSK Ltd 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.

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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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.