Correlation Between Nippon Light and Northern Trust

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

Diversification Opportunities for Nippon Light and Northern Trust

-0.52

Correlation Coefficient

Nippon Light  Northern Trust

Excellent diversification

The 3 months correlation between Nippon and Northern is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust 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 Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of Nippon Light i.e., Nippon Light and Northern Trust go up and down completely randomly.

Pair Corralation between Nippon Light and Northern Trust

Assuming the 90 days horizon Nippon Light Metal is expected to under-perform the Northern Trust. In addition to that, Nippon Light is 1.06 times more volatile than Northern Trust. It trades about -0.02 of its total potential returns per unit of risk. Northern Trust is currently generating about 0.11 per unit of volatility. If you would invest  9,431  in Northern Trust on October 24, 2024 and sell it today you would earn a total of  969.00  from holding Northern Trust or generate 10.27% 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.  Northern Trust

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Trust

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Nippon Light and Northern Trust

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

The idea behind Nippon Light Metal and Northern Trust 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..