Correlation Between NEW MILLENNIUM and KOBE STEEL

Can any of the company-specific risk be diversified away by investing in both NEW MILLENNIUM and KOBE 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 NEW MILLENNIUM and KOBE STEEL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NEW MILLENNIUM IRON and KOBE STEEL LTD, you can compare the effects of market volatilities on NEW MILLENNIUM and KOBE 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 NEW MILLENNIUM with a short position of KOBE STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEW MILLENNIUM and KOBE STEEL.

Diversification Opportunities for NEW MILLENNIUM and KOBE STEEL

-0.06

Correlation Coefficient

NEW MILLENNIUM  KOBE STEEL

Good diversification

The 3 months correlation between NEW and KOBE is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding NEW MILLENNIUM IRON and KOBE STEEL LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOBE STEEL LTD and NEW MILLENNIUM 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 NEW MILLENNIUM IRON are associated (or correlated) with KOBE STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOBE STEEL LTD has no effect on the direction of NEW MILLENNIUM i.e., NEW MILLENNIUM and KOBE STEEL go up and down completely randomly.

Pair Corralation between NEW MILLENNIUM and KOBE STEEL

Assuming the 90 days trading horizon NEW MILLENNIUM IRON is expected to generate 1.82 times more return on investment than KOBE STEEL. However, NEW MILLENNIUM is 1.82 times more volatile than KOBE STEEL LTD. It trades about 0.06 of its potential returns per unit of risk. KOBE STEEL LTD is currently generating about -0.08 per unit of risk. If you would invest  740.00  in NEW MILLENNIUM IRON on October 8, 2024 and sell it today you would earn a total of  55.00  from holding NEW MILLENNIUM IRON or generate 7.43% return on investment over 90 days.

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

NEW MILLENNIUM IRON  vs.  KOBE STEEL LTD

NEW MILLENNIUM IRON

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NEW MILLENNIUM IRON are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEW MILLENNIUM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

KOBE STEEL LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KOBE STEEL LTD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with NEW MILLENNIUM and KOBE STEEL

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

The idea behind NEW MILLENNIUM IRON and KOBE STEEL LTD 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.