Correlation Between Makita and Techtronic Industries
Can any of the company-specific risk be diversified away by investing in both Makita and Techtronic 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 Makita and Techtronic Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Makita and Techtronic Industries Ltd, you can compare the effects of market volatilities on Makita and Techtronic 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 Makita with a short position of Techtronic Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Makita and Techtronic Industries.
Diversification Opportunities for Makita and Techtronic Industries
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Makita and Techtronic is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Makita and Techtronic Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techtronic Industries and Makita 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 Makita are associated (or correlated) with Techtronic Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techtronic Industries has no effect on the direction of Makita i.e., Makita and Techtronic Industries go up and down completely randomly.
Pair Corralation between Makita and Techtronic Industries
Assuming the 90 days horizon Makita is expected to generate 6.46 times more return on investment than Techtronic Industries. However, Makita is 6.46 times more volatile than Techtronic Industries Ltd. It trades about 0.07 of its potential returns per unit of risk. Techtronic Industries Ltd is currently generating about 0.02 per unit of risk. If you would invest 2,166 in Makita on August 24, 2024 and sell it today you would earn a total of 563.00 from holding Makita or generate 25.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 57.06% |
| Values | Daily Returns |
Makita vs. Techtronic Industries Ltd
Performance |
| Timeline |
| Makita |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Techtronic Industries |
Makita and Techtronic Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Makita and Techtronic Industries
The main advantage of trading using opposite Makita and Techtronic Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Makita position performs unexpectedly, Techtronic 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 Techtronic Industries will offset losses from the drop in Techtronic Industries' long position.The idea behind Makita and Techtronic 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.| Techtronic Industries vs. SMC Corp Japan | Techtronic Industries vs. Hong Kong Exchange | Techtronic Industries vs. AIA Group Ltd | Techtronic Industries vs. Techtronic Industries |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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