Correlation Between KRAKATAU STEEL and Nippon Steel

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Can any of the company-specific risk be diversified away by investing in both KRAKATAU STEEL and Nippon Steel 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 KRAKATAU STEEL and Nippon Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KRAKATAU STEEL B and Nippon Steel, you can compare the effects of market volatilities on KRAKATAU STEEL and Nippon Steel 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 KRAKATAU STEEL with a short position of Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and Nippon Steel.

Diversification Opportunities for KRAKATAU STEEL and Nippon Steel

-0.61
  Correlation Coefficient

Excellent diversification

The 3 months correlation between KRAKATAU and Nippon is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and KRAKATAU STEEL 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 KRAKATAU STEEL B are associated (or correlated) with Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of KRAKATAU STEEL i.e., KRAKATAU STEEL and Nippon Steel go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and Nippon Steel

Assuming the 90 days trading horizon KRAKATAU STEEL B is expected to generate 5.19 times more return on investment than Nippon Steel. However, KRAKATAU STEEL is 5.19 times more volatile than Nippon Steel. It trades about 0.05 of its potential returns per unit of risk. Nippon Steel is currently generating about -0.01 per unit of risk. If you would invest  1.80  in KRAKATAU STEEL B on September 14, 2024 and sell it today you would lose (1.20) from holding KRAKATAU STEEL B or give up 66.67% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

KRAKATAU STEEL B   vs.  Nippon Steel

 Performance 
       Timeline  
KRAKATAU STEEL B 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.
Nippon Steel 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nippon Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

KRAKATAU STEEL and Nippon Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with KRAKATAU STEEL and Nippon Steel

The main advantage of trading using opposite KRAKATAU STEEL and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KRAKATAU STEEL position performs unexpectedly, Nippon Steel 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 Nippon Steel will offset losses from the drop in Nippon Steel's long position.
The idea behind KRAKATAU STEEL B and Nippon Steel 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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