Can any of the company-specific risk be diversified away by investing in both Armstrong World 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 Armstrong World and Daikin Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Armstrong World Industries and Daikin Industries Ltd, you can compare the effects of market volatilities on Armstrong World 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 Armstrong World with a short position of Daikin Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Armstrong World and Daikin Industries.
Diversification Opportunities for Armstrong World and Daikin Industries
The 3 months correlation between Armstrong and Daikin is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and Daikin Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daikin Industries and Armstrong World 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 Armstrong World Industries 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 Armstrong World i.e., Armstrong World and Daikin Industries go up and down completely randomly.
Pair Corralation between Armstrong World and Daikin Industries
Considering the 90-day investment horizon Armstrong World Industries is expected to under-perform the Daikin Industries. But the stock apears to be less risky and, when comparing its historical volatility, Armstrong World Industries is 2.72 times less risky than Daikin Industries. The stock trades about -0.03 of its potential returns per unit of risk. The Daikin Industries Ltd is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,460 in Daikin Industries Ltd on March 6, 2024 and sell it today you would earn a total of 20.00 from holding Daikin Industries Ltd or generate 1.37% return on investment over 90 days.
Over the last 90 days Armstrong World Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Armstrong World is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
Compared to the overall equity markets, risk-adjusted returns on investments in Daikin Industries Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Daikin Industries is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.