Correlation Between Daikin Industries and Compagnie

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

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

Diversification Opportunities for Daikin Industries and Compagnie

0.02

Correlation Coefficient

Daikin Industries  Compagnie

Significant diversification

The 3 months correlation between Daikin and Compagnie is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Daikin Industries Ltd and Compagnie de Saint Gobain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie de Saint and Daikin 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 Daikin Industries Ltd are associated (or correlated) with Compagnie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie de Saint has no effect on the direction of Daikin Industries i.e., Daikin Industries and Compagnie go up and down completely randomly.

Pair Corralation between Daikin Industries and Compagnie

Assuming the 90 days horizon Daikin Industries is expected to generate 6.84 times less return on investment than Compagnie. But when comparing it to its historical volatility, Daikin Industries Ltd is 1.45 times less risky than Compagnie. It trades about 0.01 of its potential returns per unit of risk. Compagnie de Saint Gobain is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,346  in Compagnie de Saint Gobain on February 10, 2024 and sell it today you would earn a total of  3,219  from holding Compagnie de Saint Gobain or generate 60.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Daikin Industries Ltd  vs.  Compagnie de Saint Gobain

Daikin Industries

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Daikin Industries Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Daikin Industries may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Compagnie de Saint

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daikin Industries and Compagnie

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

The idea behind Daikin Industries Ltd and Compagnie de Saint Gobain 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.