Correlation Between Nippon Light and CaixaBank

Can any of the company-specific risk be diversified away by investing in both Nippon Light and CaixaBank 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 CaixaBank 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 CaixaBank SA, you can compare the effects of market volatilities on Nippon Light and CaixaBank 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 CaixaBank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Light and CaixaBank.

Diversification Opportunities for Nippon Light and CaixaBank

0.78

Correlation Coefficient

Nippon Light  CaixaBank

Poor diversification

The 3 months correlation between Nippon and CaixaBank is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and CaixaBank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CaixaBank SA 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 CaixaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CaixaBank SA has no effect on the direction of Nippon Light i.e., Nippon Light and CaixaBank go up and down completely randomly.

Pair Corralation between Nippon Light and CaixaBank

Assuming the 90 days horizon Nippon Light is expected to generate 3.68 times less return on investment than CaixaBank. But when comparing it to its historical volatility, Nippon Light Metal is 1.54 times less risky than CaixaBank. It trades about 0.11 of its potential returns per unit of risk. CaixaBank SA is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  512.00  in CaixaBank SA on December 22, 2024 and sell it today you would earn a total of  209.00  from holding CaixaBank SA or generate 40.82% return on investment over 90 days.

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

Nippon Light Metal  vs.  CaixaBank SA

Nippon Light Metal

Risk-Adjusted Performance

OK

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

CaixaBank SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CaixaBank SA are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, CaixaBank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Light and CaixaBank

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

The idea behind Nippon Light Metal and CaixaBank SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.