Correlation Between DENSO and Lear
Can any of the company-specific risk be diversified away by investing in both DENSO and Lear 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 DENSO and Lear into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DENSO and Lear Corporation, you can compare the effects of market volatilities on DENSO and Lear 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 DENSO with a short position of Lear. Check out your portfolio center. Please also check ongoing floating volatility patterns of DENSO and Lear.
Diversification Opportunities for DENSO and Lear
Average diversification
The 3 months correlation between DENSO and Lear is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding DENSO and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear and DENSO 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 DENSO are associated (or correlated) with Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of DENSO i.e., DENSO and Lear go up and down completely randomly.
Pair Corralation between DENSO and Lear
Assuming the 90 days horizon DENSO is expected to generate 45.89 times more return on investment than Lear. However, DENSO is 45.89 times more volatile than Lear Corporation. It trades about 0.17 of its potential returns per unit of risk. Lear Corporation is currently generating about -0.02 per unit of risk. 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 | Insignificant |
| Accuracy | 93.56% |
| Values | Daily Returns |
DENSO vs. Lear Corp.
Performance |
| Timeline |
| DENSO |
| Lear |
DENSO and Lear Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DENSO and Lear
The main advantage of trading using opposite DENSO and Lear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DENSO position performs unexpectedly, Lear 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 Lear will offset losses from the drop in Lear's long position.| 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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