Correlation Between NIPPON STEEL and LEGACY IRON
Can any of the company-specific risk be diversified away by investing in both NIPPON STEEL and LEGACY IRON 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 LEGACY IRON into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NIPPON STEEL SPADR and LEGACY IRON ORE, you can compare the effects of market volatilities on NIPPON STEEL and LEGACY IRON 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 LEGACY IRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIPPON STEEL and LEGACY IRON.
Diversification Opportunities for NIPPON STEEL and LEGACY IRON
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between NIPPON and LEGACY is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and LEGACY IRON ORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGACY IRON ORE 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 SPADR are associated (or correlated) with LEGACY IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGACY IRON ORE has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and LEGACY IRON go up and down completely randomly.
Pair Corralation between NIPPON STEEL and LEGACY IRON
Assuming the 90 days trading horizon NIPPON STEEL SPADR is expected to generate 0.66 times more return on investment than LEGACY IRON. However, NIPPON STEEL SPADR is 1.5 times less risky than LEGACY IRON. It trades about 0.12 of its potential returns per unit of risk. LEGACY IRON ORE is currently generating about -0.21 per unit of risk. If you would invest 585.00 in NIPPON STEEL SPADR on August 25, 2024 and sell it today you would earn a total of 20.00 from holding NIPPON STEEL SPADR or generate 3.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NIPPON STEEL SPADR vs. LEGACY IRON ORE
Performance |
| Timeline |
| NIPPON STEEL SPADR |
| LEGACY IRON ORE |
NIPPON STEEL and LEGACY IRON Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NIPPON STEEL and LEGACY IRON
The main advantage of trading using opposite NIPPON STEEL and LEGACY IRON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NIPPON STEEL position performs unexpectedly, LEGACY IRON 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 LEGACY IRON will offset losses from the drop in LEGACY IRON's long position.| NIPPON STEEL vs. Solstad Offshore ASA | NIPPON STEEL vs. Rogers Communications | NIPPON STEEL vs. Eidesvik Offshore ASA | NIPPON STEEL vs. Verizon Communications |
| LEGACY IRON vs. Insteel Industries | LEGACY IRON vs. Boiron SA | LEGACY IRON vs. SBM OFFSHORE | LEGACY IRON vs. Nippon Steel |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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