Correlation Between National Beverage and Japan Steel

Can any of the company-specific risk be diversified away by investing in both National Beverage and Japan 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 National Beverage and Japan Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Beverage Corp and The Japan Steel, you can compare the effects of market volatilities on National Beverage and Japan 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 National Beverage with a short position of Japan Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Japan Steel.

Diversification Opportunities for National Beverage and Japan Steel

0.48

Correlation Coefficient

National Beverage  Japan Steel

Very weak diversification

The 3 months correlation between National and Japan is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and The Japan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Steel and National Beverage 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 National Beverage Corp are associated (or correlated) with Japan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Steel has no effect on the direction of National Beverage i.e., National Beverage and Japan Steel go up and down completely randomly.

Pair Corralation between National Beverage and Japan Steel

Assuming the 90 days horizon National Beverage Corp is expected to under-perform the Japan Steel. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.82 times less risky than Japan Steel. The stock trades about -0.02 of its potential returns per unit of risk. The The Japan Steel is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,080  in The Japan Steel on October 26, 2024 and sell it today you would earn a total of  620.00  from holding The Japan Steel or generate 20.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

National Beverage Corp  vs.  The Japan Steel

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Japan Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and Japan Steel

The main advantage of trading using opposite National Beverage and Japan Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage position performs unexpectedly, Japan 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 Japan Steel will offset losses from the drop in Japan Steel's long position.

The idea behind National Beverage Corp and The Japan 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.