Correlation Between Steel Dynamics and Nippon Steel
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics 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 Steel Dynamics and Nippon Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Nippon Steel, you can compare the effects of market volatilities on Steel Dynamics 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 Steel Dynamics with a short position of Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Nippon Steel.
Diversification Opportunities for Steel Dynamics and Nippon Steel
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Steel and Nippon is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics i.e., Steel Dynamics and Nippon Steel go up and down completely randomly.
Pair Corralation between Steel Dynamics and Nippon Steel
Assuming the 90 days horizon Steel Dynamics is expected to generate 0.93 times more return on investment than Nippon Steel. However, Steel Dynamics is 1.08 times less risky than Nippon Steel. It trades about 0.04 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.03 per unit of risk. If you would invest 10,075 in Steel Dynamics on September 3, 2024 and sell it today you would earn a total of 3,401 from holding Steel Dynamics or generate 33.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Steel Dynamics vs. Nippon Steel
Performance |
| Timeline |
| Steel Dynamics |
| Nippon Steel |
Steel Dynamics and Nippon Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Nippon Steel
The main advantage of trading using opposite Steel Dynamics and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics 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.| Steel Dynamics vs. ArcelorMittal | Steel Dynamics vs. NIPPON STEEL SPADR | Steel Dynamics vs. POSCO Holdings | Steel Dynamics vs. Reliance Steel Aluminum |
| Nippon Steel vs. The Trade Desk | Nippon Steel vs. GREENX METALS LTD | Nippon Steel vs. Perseus Mining Limited | Nippon Steel vs. LION ONE METALS |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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