Correlation Between Nishi-Nippon Railroad and OReilly Automotive

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

Diversification Opportunities for Nishi-Nippon Railroad and OReilly Automotive

0.32

Correlation Coefficient

Nishi-Nippon Railroad  OReilly Automotive

Weak diversification

The 3 months correlation between Nishi-Nippon and OReilly is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Nishi Nippon Railroad Co and OReilly Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OReilly Automotive 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 OReilly Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OReilly Automotive has no effect on the direction of Nishi-Nippon Railroad i.e., Nishi-Nippon Railroad and OReilly Automotive go up and down completely randomly.

Pair Corralation between Nishi-Nippon Railroad and OReilly Automotive

Assuming the 90 days horizon Nishi-Nippon Railroad is expected to generate 3.51 times less return on investment than OReilly Automotive. But when comparing it to its historical volatility, Nishi Nippon Railroad Co is 1.07 times less risky than OReilly Automotive. It trades about 0.02 of its potential returns per unit of risk. OReilly Automotive is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  115,500  in OReilly Automotive on December 23, 2024 and sell it today you would earn a total of  7,900  from holding OReilly Automotive or generate 6.84% return on investment over 90 days.

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

Nishi Nippon Railroad Co  vs.  OReilly Automotive

Nishi Nippon Railroad

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nishi Nippon Railroad Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

OReilly Automotive

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in OReilly Automotive are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, OReilly Automotive may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nishi-Nippon Railroad and OReilly Automotive

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

The idea behind Nishi Nippon Railroad Co and OReilly Automotive 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.