Correlation Between Gold Road and Nippon Steel | E6Q.F vs. NPS.STU

Correlation Between Gold Road and Nippon Steel

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Can any of the company-specific risk be diversified away by investing in both Gold 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 Gold 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 Gold Road Resources and Nippon Steel, you can compare the effects of market volatilities on Gold 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 Gold Road with a short position of Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Road and Nippon Steel.

Diversification Opportunities for Gold Road and Nippon Steel

GoldNipponDiversified AwayGoldNipponDiversified Away100%
-0.49
  Correlation Coefficient

Very good diversification

The 3 months correlation between Gold and Nippon is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Gold Road Resources and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and Gold 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 Gold Road Resources 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 Gold Road i.e., Gold Road and Nippon Steel go up and down completely randomly.

Pair Corralation between Gold Road and Nippon Steel

Assuming the 90 days horizon Gold Road Resources is expected to generate 1.36 times more return on investment than Nippon Steel. However, Gold Road is 1.36 times more volatile than Nippon Steel. It trades about 0.13 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.0 per unit of risk. If you would invest  112.00  in Gold Road Resources on September 29, 2024 and sell it today you would earn a total of  7.00  from holding Gold Road Resources or generate 6.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Gold Road Resources  vs.  Nippon Steel

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -100102030
JavaScript chart by amCharts 3.21.15E6Q NPS
       Timeline  
Gold Road Resources 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Gold Road reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec1.051.11.151.21.251.3
Nippon Steel 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. 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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec1818.51919.520

Gold Road and Nippon Steel Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-7.18-5.38-3.58-1.77-0.03011.863.775.697.619.53 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15E6Q NPS
       Returns  

Pair Trading with Gold Road and Nippon Steel

The main advantage of trading using opposite Gold Road and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gold 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 Gold Road Resources 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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