Correlation Between Nippon Steel and Champion Iron

Can any of the company-specific risk be diversified away by investing in both Nippon Steel and Champion Iron 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 Steel and Champion Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nippon Steel and Champion Iron Limited, you can compare the effects of market volatilities on Nippon Steel and Champion Iron 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 Steel with a short position of Champion Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and Champion Iron.

Diversification Opportunities for Nippon Steel and Champion Iron

-0.17

Correlation Coefficient

Nippon Steel  Champion Iron

Good diversification

The 3 months correlation between Nippon and Champion is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Champion Iron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron Limited and Nippon Steel 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 Steel are associated (or correlated) with Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron Limited has no effect on the direction of Nippon Steel i.e., Nippon Steel and Champion Iron go up and down completely randomly.

Pair Corralation between Nippon Steel and Champion Iron

Assuming the 90 days horizon Nippon Steel is expected to generate 0.91 times more return on investment than Champion Iron. However, Nippon Steel is 1.1 times less risky than Champion Iron. It trades about 0.16 of its potential returns per unit of risk. Champion Iron Limited is currently generating about -0.02 per unit of risk. If you would invest  1,698  in Nippon Steel on December 22, 2024 and sell it today you would earn a total of  511.00  from holding Nippon Steel or generate 30.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

Nippon Steel  vs.  Champion Iron Limited

Nippon Steel

Risk-Adjusted Performance

Good

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

Champion Iron Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nippon Steel and Champion Iron

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

The idea behind Nippon Steel and Champion Iron Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.