Correlation Between Nishi-Nippon Railroad and Hufvudstaden

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

By analyzing existing cross correlation between Nishi Nippon Railroad Co and Hufvudstaden AB, you can compare the effects of market volatilities on Nishi-Nippon Railroad and Hufvudstaden 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 Nishi-Nippon Railroad with a short position of Hufvudstaden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nishi-Nippon Railroad and Hufvudstaden.

Diversification Opportunities for Nishi-Nippon Railroad and Hufvudstaden

0.02

Correlation Coefficient

Nishi-Nippon Railroad  Hufvudstaden

Significant diversification

The 3 months correlation between Nishi-Nippon and Hufvudstaden is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Nishi Nippon Railroad Co and Hufvudstaden AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hufvudstaden AB and Nishi-Nippon Railroad 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 Nishi Nippon Railroad Co are associated (or correlated) with Hufvudstaden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hufvudstaden AB has no effect on the direction of Nishi-Nippon Railroad i.e., Nishi-Nippon Railroad and Hufvudstaden go up and down completely randomly.

Pair Corralation between Nishi-Nippon Railroad and Hufvudstaden

Assuming the 90 days horizon Nishi Nippon Railroad Co is expected to generate 1.36 times more return on investment than Hufvudstaden. However, Nishi-Nippon Railroad is 1.36 times more volatile than Hufvudstaden AB. It trades about 0.05 of its potential returns per unit of risk. Hufvudstaden AB is currently generating about 0.05 per unit of risk. If you would invest  950.00  in Nishi Nippon Railroad Co on October 8, 2024 and sell it today you would earn a total of  430.00  from holding Nishi Nippon Railroad Co or generate 45.26% return on investment over 90 days.

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

Nishi Nippon Railroad Co  vs.  Hufvudstaden AB

Nishi Nippon Railroad

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hufvudstaden AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hufvudstaden AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nishi-Nippon Railroad and Hufvudstaden

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

The idea behind Nishi Nippon Railroad Co and Hufvudstaden AB 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.