Correlation Between United States and Nippon Steel
Can any of the company-specific risk be diversified away by investing in both United States 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 United States and Nippon Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United States Steel and Nippon Steel, you can compare the effects of market volatilities on United States 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 United States with a short position of Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Nippon Steel.
Diversification Opportunities for United States and Nippon Steel
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between United and Nippon is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and United States 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 United States Steel 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 United States i.e., United States and Nippon Steel go up and down completely randomly.
Pair Corralation between United States and Nippon Steel
Assuming the 90 days trading horizon United States is expected to generate 2.95 times less return on investment than Nippon Steel. But when comparing it to its historical volatility, United States Steel is 1.85 times less risky than Nippon Steel. It trades about 0.05 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,720 in Nippon Steel on August 28, 2024 and sell it today you would earn a total of 106.00 from holding Nippon Steel or generate 6.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United States Steel vs. Nippon Steel
Performance |
| Timeline |
| United States Steel |
| Nippon Steel |
United States and Nippon Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United States and Nippon Steel
The main advantage of trading using opposite United States and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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.| Nippon Steel vs. KENNAMETAL INC | Nippon Steel vs. Perseus Mining Limited | Nippon Steel vs. Nippon Steel | Nippon Steel vs. MCEWEN MINING INC |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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