Correlation Between Nippon Light and Hyatt Hotels

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

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

Diversification Opportunities for Nippon Light and Hyatt Hotels

-0.48

Correlation Coefficient

Nippon Light  Hyatt Hotels

Very good diversification

The 3 months correlation between Nippon and Hyatt is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and Hyatt Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyatt Hotels and Nippon Light 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 Nippon Light Metal are associated (or correlated) with Hyatt Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyatt Hotels has no effect on the direction of Nippon Light i.e., Nippon Light and Hyatt Hotels go up and down completely randomly.

Pair Corralation between Nippon Light and Hyatt Hotels

Assuming the 90 days horizon Nippon Light Metal is expected to under-perform the Hyatt Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Nippon Light Metal is 1.11 times less risky than Hyatt Hotels. The stock trades about -0.03 of its potential returns per unit of risk. The Hyatt Hotels is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,605  in Hyatt Hotels on October 9, 2024 and sell it today you would earn a total of  3,080  from holding Hyatt Hotels or generate 26.54% return on investment over 90 days.

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

Nippon Light Metal  vs.  Hyatt Hotels

Nippon Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hyatt Hotels

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hyatt Hotels are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hyatt Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Nippon Light and Hyatt Hotels

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

The idea behind Nippon Light Metal and Hyatt Hotels 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.