Correlation Between Nippon Light and BRIT AMER

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

Diversification Opportunities for Nippon Light and BRIT AMER

0.74

Correlation Coefficient

Nippon Light  BRIT AMER

Poor diversification

The 3 months correlation between Nippon and BRIT is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and BRIT AMER TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRIT AMER TOBACCO 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 BRIT AMER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRIT AMER TOBACCO has no effect on the direction of Nippon Light i.e., Nippon Light and BRIT AMER go up and down completely randomly.

Pair Corralation between Nippon Light and BRIT AMER

Assuming the 90 days horizon Nippon Light is expected to generate 1.02 times less return on investment than BRIT AMER. But when comparing it to its historical volatility, Nippon Light Metal is 1.07 times less risky than BRIT AMER. It trades about 0.11 of its potential returns per unit of risk. BRIT AMER TOBACCO is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,455  in BRIT AMER TOBACCO on December 21, 2024 and sell it today you would earn a total of  332.00  from holding BRIT AMER TOBACCO or generate 9.61% 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.  BRIT AMER TOBACCO

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.

BRIT AMER TOBACCO

Risk-Adjusted Performance

OK

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

Pair Trading with Nippon Light and BRIT AMER

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

The idea behind Nippon Light Metal and BRIT AMER TOBACCO 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.