Correlation Between Japan Steel and NOV

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

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

Diversification Opportunities for Japan Steel and NOV

-0.05

Correlation Coefficient

Japan Steel  NOV

Good diversification

The 3 months correlation between Japan and NOV is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and NOV Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOV Inc and Japan Steel 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 The Japan Steel are associated (or correlated) with NOV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOV Inc has no effect on the direction of Japan Steel i.e., Japan Steel and NOV go up and down completely randomly.

Pair Corralation between Japan Steel and NOV

Assuming the 90 days horizon The Japan Steel is expected to generate 1.57 times more return on investment than NOV. However, Japan Steel is 1.57 times more volatile than NOV Inc. It trades about 0.01 of its potential returns per unit of risk. NOV Inc is currently generating about 0.0 per unit of risk. If you would invest  3,780  in The Japan Steel on December 19, 2024 and sell it today you would lose (120.00) from holding The Japan Steel or give up 3.17% of portfolio value over 90 days.

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

The Japan Steel  vs.  NOV Inc

Japan Steel

Risk-Adjusted Performance

Very Weak

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

NOV Inc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Japan Steel and NOV

The main advantage of trading using opposite Japan Steel and NOV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Steel position performs unexpectedly, NOV 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 NOV will offset losses from the drop in NOV's long position.

The idea behind The Japan Steel and NOV Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.