Correlation Between Japan Steel and PT Steel

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

Diversification Opportunities for Japan Steel and PT Steel

-0.35

Correlation Coefficient

Japan Steel  PT Steel

Very good diversification

The 3 months correlation between Japan and S08 is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and PT Steel Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Steel Pipe 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 PT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Steel Pipe has no effect on the direction of Japan Steel i.e., Japan Steel and PT Steel go up and down completely randomly.

Pair Corralation between Japan Steel and PT Steel

Assuming the 90 days horizon Japan Steel is expected to generate 3.63 times less return on investment than PT Steel. But when comparing it to its historical volatility, The Japan Steel is 3.72 times less risky than PT Steel. It trades about 0.04 of its potential returns per unit of risk. PT Steel Pipe is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1.15  in PT Steel Pipe on October 26, 2024 and sell it today you would earn a total of  0.00  from holding PT Steel Pipe or generate 0.0% return on investment over 90 days.

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

The Japan Steel  vs.  PT Steel Pipe

Japan Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Japan Steel reported solid returns over the last few months and may actually be approaching a breakup point.

PT Steel Pipe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Steel Pipe has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Japan Steel and PT Steel

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

The idea behind The Japan Steel and PT Steel Pipe 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.