Correlation Between Autoliv and DENSO
Can any of the company-specific risk be diversified away by investing in both Autoliv and DENSO 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 Autoliv and DENSO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Autoliv and DENSO, you can compare the effects of market volatilities on Autoliv and DENSO 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 Autoliv with a short position of DENSO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Autoliv and DENSO.
Diversification Opportunities for Autoliv and DENSO
Very weak diversification
The 3 months correlation between Autoliv and DENSO is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Autoliv and DENSO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENSO and Autoliv 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 Autoliv are associated (or correlated) with DENSO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENSO has no effect on the direction of Autoliv i.e., Autoliv and DENSO go up and down completely randomly.
Pair Corralation between Autoliv and DENSO
Considering the 90-day investment horizon Autoliv is expected to generate 231.15 times less return on investment than DENSO. But when comparing it to its historical volatility, Autoliv is 43.49 times less risky than DENSO. It trades about 0.03 of its potential returns per unit of risk. DENSO is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 5,441 in DENSO on August 26, 2024 and sell it today you would lose (3,956) from holding DENSO or give up 72.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 93.56% |
| Values | Daily Returns |
Autoliv vs. DENSO
Performance |
| Timeline |
| Autoliv |
| DENSO |
Autoliv and DENSO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Autoliv and DENSO
The main advantage of trading using opposite Autoliv and DENSO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autoliv position performs unexpectedly, DENSO 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 DENSO will offset losses from the drop in DENSO's long position.The idea behind Autoliv and DENSO 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.| DENSO vs. Bridgestone Corp ADR | DENSO vs. American Axle Manufacturing | DENSO vs. Dana Inc | DENSO vs. Aeva Technologies |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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