Correlation Between Peak Resources and Nippon Steel

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

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

Diversification Opportunities for Peak Resources and Nippon Steel

-0.31

Correlation Coefficient

Peak Resources  Nippon Steel

Very good diversification

The 3 months correlation between Peak and Nippon is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Peak Resources Limited and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and Peak Resources 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 Peak Resources Limited 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 Peak Resources i.e., Peak Resources and Nippon Steel go up and down completely randomly.

Pair Corralation between Peak Resources and Nippon Steel

Assuming the 90 days horizon Peak Resources Limited is expected to generate 5.3 times more return on investment than Nippon Steel. However, Peak Resources is 5.3 times more volatile than Nippon Steel. It trades about 0.03 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.12 per unit of risk. If you would invest  5.90  in Peak Resources Limited on December 26, 2024 and sell it today you would lose (0.15) from holding Peak Resources Limited or give up 2.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Peak Resources Limited  vs.  Nippon Steel

Peak Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Peak Resources Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Peak Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Nippon Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Peak Resources and Nippon Steel

The main advantage of trading using opposite Peak Resources and Nippon Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peak Resources 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 Peak Resources Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.