Correlation Between Nippon Light and Fortescue Metals
Can any of the company-specific risk be diversified away by investing in both Nippon Light and Fortescue Metals 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 Nippon Light and Fortescue Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nippon Light Metal and Fortescue Metals Group, you can compare the effects of market volatilities on Nippon Light and Fortescue Metals 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 Nippon Light with a short position of Fortescue Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Light and Fortescue Metals.
Diversification Opportunities for Nippon Light and Fortescue Metals
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nippon and Fortescue is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals and Nippon Light 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 Nippon Light Metal are associated (or correlated) with Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Nippon Light i.e., Nippon Light and Fortescue Metals go up and down completely randomly.
Pair Corralation between Nippon Light and Fortescue Metals
Assuming the 90 days horizon Nippon Light Metal is expected to generate 0.8 times more return on investment than Fortescue Metals. However, Nippon Light Metal is 1.25 times less risky than Fortescue Metals. It trades about -0.1 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about -0.44 per unit of risk. If you would invest 940.00 in Nippon Light Metal on October 12, 2024 and sell it today you would lose (25.00) from holding Nippon Light Metal or give up 2.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nippon Light Metal vs. Fortescue Metals Group
Performance |
| Timeline |
| Nippon Light Metal |
| Fortescue Metals |
Nippon Light and Fortescue Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nippon Light and Fortescue Metals
The main advantage of trading using opposite Nippon Light and Fortescue Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Light position performs unexpectedly, Fortescue Metals 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 Fortescue Metals will offset losses from the drop in Fortescue Metals' long position.| Nippon Light vs. Hanison Construction Holdings | Nippon Light vs. FARM 51 GROUP | Nippon Light vs. Ultra Clean Holdings | Nippon Light vs. Hitachi Construction Machinery |
| Fortescue Metals vs. Sinopec Shanghai Petrochemical | Fortescue Metals vs. Mitsui Chemicals | Fortescue Metals vs. EBRO FOODS | Fortescue Metals vs. X FAB Silicon Foundries |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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