Correlation Between Nippon Light and PRECISION DRILLING

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

Diversification Opportunities for Nippon Light and PRECISION DRILLING

-0.27

Correlation Coefficient

Nippon Light  PRECISION DRILLING

Very good diversification

The 3 months correlation between Nippon and PRECISION is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Light Metal and PRECISION DRILLING P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRECISION DRILLING 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 PRECISION DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRECISION DRILLING has no effect on the direction of Nippon Light i.e., Nippon Light and PRECISION DRILLING go up and down completely randomly.

Pair Corralation between Nippon Light and PRECISION DRILLING

Assuming the 90 days horizon Nippon Light Metal is expected to under-perform the PRECISION DRILLING. But the stock apears to be less risky and, when comparing its historical volatility, Nippon Light Metal is 1.42 times less risky than PRECISION DRILLING. The stock trades about -0.01 of its potential returns per unit of risk. The PRECISION DRILLING P is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,300  in PRECISION DRILLING P on October 25, 2024 and sell it today you would earn a total of  1,150  from holding PRECISION DRILLING P or generate 21.7% return on investment over 90 days.

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

Nippon Light Metal  vs.  PRECISION DRILLING P

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.

PRECISION DRILLING

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PRECISION DRILLING P are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, PRECISION DRILLING reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Light and PRECISION DRILLING

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

The idea behind Nippon Light Metal and PRECISION DRILLING P 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.