Correlation Between BRIT AMER and Nippon Steel

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

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

Diversification Opportunities for BRIT AMER and Nippon Steel

0.22

Correlation Coefficient

BRIT AMER  Nippon Steel

Modest diversification

The 3 months correlation between BRIT and Nippon is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding BRIT AMER TOBACCO and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and BRIT AMER 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 BRIT AMER TOBACCO 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 BRIT AMER i.e., BRIT AMER and Nippon Steel go up and down completely randomly.

Pair Corralation between BRIT AMER and Nippon Steel

Assuming the 90 days trading horizon BRIT AMER is expected to generate 5.29 times less return on investment than Nippon Steel. But when comparing it to its historical volatility, BRIT AMER TOBACCO is 1.32 times less risky than Nippon Steel. It trades about 0.04 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,861  in Nippon Steel on October 25, 2024 and sell it today you would earn a total of  72.00  from holding Nippon Steel or generate 3.87% return on investment over 90 days.

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

BRIT AMER TOBACCO  vs.  Nippon Steel

BRIT AMER TOBACCO

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BRIT AMER TOBACCO are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BRIT AMER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nippon Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nippon Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BRIT AMER and Nippon Steel

The main advantage of trading using opposite BRIT AMER and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRIT AMER 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 BRIT AMER TOBACCO 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.