Correlation Between Iron Road and Nippon Steel

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

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

Diversification Opportunities for Iron Road and Nippon Steel

0.11

Correlation Coefficient

Iron Road  Nippon Steel

Average diversification

The 3 months correlation between Iron and Nippon is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road Limited and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and Iron Road 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 Iron Road Limited 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 Iron Road i.e., Iron Road and Nippon Steel go up and down completely randomly.

Pair Corralation between Iron Road and Nippon Steel

Assuming the 90 days horizon Iron Road Limited is expected to under-perform the Nippon Steel. In addition to that, Iron Road is 1.04 times more volatile than Nippon Steel. It trades about -0.04 of its total potential returns per unit of risk. Nippon Steel is currently generating about 0.06 per unit of volatility. If you would invest  1,850  in Nippon Steel on October 8, 2024 and sell it today you would earn a total of  37.00  from holding Nippon Steel or generate 2.0% return on investment over 90 days.

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

Iron Road Limited  vs.  Nippon Steel

Iron Road Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Iron Road and Nippon Steel

The main advantage of trading using opposite Iron Road and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road 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 Iron Road Limited 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.