Correlation Between Trane Technologies and Daikin Industries

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

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

Diversification Opportunities for Trane Technologies and Daikin Industries

-0.27

Correlation Coefficient

Trane Technologies  Daikin Industries

Very good diversification

The 3 months correlation between Trane and Daikin is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Daikin Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin Industries and Trane Technologies 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 Trane Technologies plc are associated (or correlated) with Daikin Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daikin Industries has no effect on the direction of Trane Technologies i.e., Trane Technologies and Daikin Industries go up and down completely randomly.

Pair Corralation between Trane Technologies and Daikin Industries

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to generate 0.84 times more return on investment than Daikin Industries. However, Trane Technologies plc is 1.19 times less risky than Daikin Industries. It trades about -0.09 of its potential returns per unit of risk. Daikin Industries Ltd is currently generating about -0.13 per unit of risk. If you would invest  39,999  in Trane Technologies plc on September 21, 2024 and sell it today you would lose (2,309) from holding Trane Technologies plc or give up 5.77% of portfolio value over 90 days.

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

Trane Technologies plc  vs.  Daikin Industries Ltd

Trane Technologies plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Trane Technologies is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Daikin Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daikin Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Trane Technologies and Daikin Industries

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

The idea behind Trane Technologies plc and Daikin Industries Ltd 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.