Correlation Between Align Technology and Nippon Steel

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

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

Diversification Opportunities for Align Technology and Nippon Steel

0.44

Correlation Coefficient

Align Technology  Nippon Steel

Very weak diversification

The 3 months correlation between Align and Nippon is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and Align Technology 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 Align Technology 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 Align Technology i.e., Align Technology and Nippon Steel go up and down completely randomly.

Pair Corralation between Align Technology and Nippon Steel

Assuming the 90 days horizon Align Technology is expected to generate 1.11 times more return on investment than Nippon Steel. However, Align Technology is 1.11 times more volatile than Nippon Steel. It trades about 0.1 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.05 per unit of risk. If you would invest  20,020  in Align Technology on October 26, 2024 and sell it today you would earn a total of  2,210  from holding Align Technology or generate 11.04% return on investment over 90 days.

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

Align Technology  vs.  Nippon Steel

Align Technology

Risk-Adjusted Performance

8 of 100

Modest

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

Nippon Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Nippon Steel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Align Technology and Nippon Steel

The main advantage of trading using opposite Align Technology and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology 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 Align Technology 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.