Correlation Between Makita Corp and QEP

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

By analyzing existing cross correlation between Makita Corp and QEP Co Inc, you can compare the effects of market volatilities on Makita Corp and QEP 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 Corp with a short position of QEP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Makita Corp and QEP.

Diversification Opportunities for Makita Corp and QEP

-0.59

Correlation Coefficient

Makita Corp  QEP

Excellent diversification

The 3 months correlation between Makita and QEP is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Makita Corp and QEP Co Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QEP Co Inc and Makita Corp 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 Corp are associated (or correlated) with QEP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QEP Co Inc has no effect on the direction of Makita Corp i.e., Makita Corp and QEP go up and down completely randomly.

Pair Corralation between Makita Corp and QEP

Assuming the 90 days horizon Makita Corp is expected to generate 0.36 times more return on investment than QEP. However, Makita Corp is 2.81 times less risky than QEP. It trades about 0.2 of its potential returns per unit of risk. QEP Co Inc is currently generating about 0.02 per unit of risk. If you would invest  2,235  in Makita Corp on August 19, 2024 and sell it today you would earn a total of  485.00  from holding Makita Corp or generate 21.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	31.1%
Values	Daily Returns

Makita Corp  vs.  QEP Co Inc

Makita Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Makita Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Makita Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

QEP Co Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days QEP Co Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, QEP is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Makita Corp and QEP

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

The idea behind Makita Corp and QEP Co Inc 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.