Correlation Between Japan Post and Nippon Steel

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

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

Diversification Opportunities for Japan Post and Nippon Steel

0.17

Correlation Coefficient

Japan Post  Nippon Steel

Average diversification

The 3 months correlation between Japan and Nippon is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Japan Post Insurance and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and Japan Post 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 Japan Post Insurance 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 Japan Post i.e., Japan Post and Nippon Steel go up and down completely randomly.

Pair Corralation between Japan Post and Nippon Steel

Assuming the 90 days trading horizon Japan Post Insurance is expected to generate 0.68 times more return on investment than Nippon Steel. However, Japan Post Insurance is 1.47 times less risky than Nippon Steel. It trades about 0.16 of its potential returns per unit of risk. Nippon Steel is currently generating about -0.05 per unit of risk. If you would invest  1,580  in Japan Post Insurance on October 9, 2024 and sell it today you would earn a total of  200.00  from holding Japan Post Insurance or generate 12.66% return on investment over 90 days.

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

Japan Post Insurance  vs.  Nippon Steel

Japan Post Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Post Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Japan Post may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nippon Steel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Nippon Steel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Japan Post and Nippon Steel

The main advantage of trading using opposite Japan Post and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Post 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 Japan Post Insurance 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..