Correlation Between Nishi-Nippon Railroad and Essentra Plc

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

Diversification Opportunities for Nishi-Nippon Railroad and Essentra Plc

0.18

Correlation Coefficient

Nishi-Nippon Railroad  Essentra Plc

Average diversification

The 3 months correlation between Nishi-Nippon and Essentra is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Nishi Nippon Railroad Co and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc 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 Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of Nishi-Nippon Railroad i.e., Nishi-Nippon Railroad and Essentra Plc go up and down completely randomly.

Pair Corralation between Nishi-Nippon Railroad and Essentra Plc

Assuming the 90 days horizon Nishi Nippon Railroad Co is expected to generate 0.66 times more return on investment than Essentra Plc. However, Nishi Nippon Railroad Co is 1.52 times less risky than Essentra Plc. It trades about -0.03 of its potential returns per unit of risk. Essentra plc is currently generating about -0.15 per unit of risk. If you would invest  1,380  in Nishi Nippon Railroad Co on December 24, 2024 and sell it today you would lose (40.00) from holding Nishi Nippon Railroad Co or give up 2.9% of portfolio value over 90 days.

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

Nishi Nippon Railroad Co  vs.  Essentra plc

Nishi Nippon Railroad

Risk-Adjusted Performance

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.

Essentra plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 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 Essentra Plc

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

The idea behind Nishi Nippon Railroad Co and Essentra plc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.