Correlation Between Atlas Copco and Japan Steel

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

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

Diversification Opportunities for Atlas Copco and Japan Steel

-0.28

Correlation Coefficient

Atlas Copco  Japan Steel

Very good diversification

The 3 months correlation between Atlas and Japan is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco A and The Japan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Steel and Atlas Copco 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 Atlas Copco A 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 Atlas Copco i.e., Atlas Copco and Japan Steel go up and down completely randomly.

Pair Corralation between Atlas Copco and Japan Steel

Assuming the 90 days horizon Atlas Copco is expected to generate 2.94 times less return on investment than Japan Steel. But when comparing it to its historical volatility, Atlas Copco A is 1.53 times less risky than Japan Steel. It trades about 0.04 of its potential returns per unit of risk. The Japan Steel is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,180  in The Japan Steel on October 23, 2024 and sell it today you would earn a total of  340.00  from holding The Japan Steel or generate 10.69% return on investment over 90 days.

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

Atlas Copco A  vs.  The Japan Steel

Atlas Copco A

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco A are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Atlas Copco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Steel

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 5 (%) 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 Atlas Copco and Japan Steel

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