Correlation Between Nippon Steel and Japan Tobacco
Can any of the company-specific risk be diversified away by investing in both Nippon Steel and Japan Tobacco 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 Steel and Japan Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nippon Steel and Japan Tobacco, you can compare the effects of market volatilities on Nippon Steel and Japan Tobacco 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 Steel with a short position of Japan Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and Japan Tobacco.
Diversification Opportunities for Nippon Steel and Japan Tobacco
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Nippon and Japan is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and Nippon 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 Nippon Steel are associated (or correlated) with Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of Nippon Steel i.e., Nippon Steel and Japan Tobacco go up and down completely randomly.
Pair Corralation between Nippon Steel and Japan Tobacco
Assuming the 90 days trading horizon Nippon Steel is expected to under-perform the Japan Tobacco. But the stock apears to be less risky and, when comparing its historical volatility, Nippon Steel is 1.0 times less risky than Japan Tobacco. The stock trades about -0.02 of its potential returns per unit of risk. The Japan Tobacco is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 2,608 in Japan Tobacco on August 25, 2024 and sell it today you would lose (77.00) from holding Japan Tobacco or give up 2.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nippon Steel vs. Japan Tobacco
Performance |
| Timeline |
| Nippon Steel |
| Japan Tobacco |
Nippon Steel and Japan Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nippon Steel and Japan Tobacco
The main advantage of trading using opposite Nippon Steel and Japan Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel position performs unexpectedly, Japan Tobacco 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 Japan Tobacco will offset losses from the drop in Japan Tobacco's long position.| Nippon Steel vs. Perseus Mining Limited | Nippon Steel vs. NORDHEALTH AS NK | Nippon Steel vs. Diamondrock Hospitality Co | Nippon Steel vs. Bumrungrad Hospital Public |
| Japan Tobacco vs. Philip Morris International | Japan Tobacco vs. British American Tobacco | Japan Tobacco vs. British American Tobacco | Japan Tobacco vs. British American Tobacco |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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