Correlation Between Nippon Light and VERBUND AG

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

Diversification Opportunities for Nippon Light and VERBUND AG

0.53

Correlation Coefficient

Nippon Light  VERBUND AG

Very weak diversification

The 3 months correlation between Nippon and VERBUND is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and VERBUND AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERBUND AG 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 VERBUND AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VERBUND AG has no effect on the direction of Nippon Light i.e., Nippon Light and VERBUND AG go up and down completely randomly.

Pair Corralation between Nippon Light and VERBUND AG

Assuming the 90 days horizon Nippon Light Metal is expected to under-perform the VERBUND AG. But the stock apears to be less risky and, when comparing its historical volatility, Nippon Light Metal is 1.17 times less risky than VERBUND AG. The stock trades about -0.02 of its potential returns per unit of risk. The VERBUND AG is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7,515  in VERBUND AG on October 23, 2024 and sell it today you would lose (195.00) from holding VERBUND AG or give up 2.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Nippon Light Metal  vs.  VERBUND AG

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.

VERBUND AG

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Nippon Light and VERBUND AG

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

The idea behind Nippon Light Metal and VERBUND AG 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.