Correlation Between Nippon Steel and WILLIS LEASE

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

By analyzing existing cross correlation between Nippon Steel and WILLIS LEASE FIN, you can compare the effects of market volatilities on Nippon Steel and WILLIS LEASE 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 WILLIS LEASE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and WILLIS LEASE.

Diversification Opportunities for Nippon Steel and WILLIS LEASE

0.42

Correlation Coefficient

Nippon Steel  WILLIS LEASE

Very weak diversification

The 3 months correlation between Nippon and WILLIS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and WILLIS LEASE FIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WILLIS LEASE FIN 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 WILLIS LEASE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WILLIS LEASE FIN has no effect on the direction of Nippon Steel i.e., Nippon Steel and WILLIS LEASE go up and down completely randomly.

Pair Corralation between Nippon Steel and WILLIS LEASE

Assuming the 90 days horizon Nippon Steel is expected to generate 1.23 times less return on investment than WILLIS LEASE. But when comparing it to its historical volatility, Nippon Steel is 1.08 times less risky than WILLIS LEASE. It trades about 0.06 of its potential returns per unit of risk. WILLIS LEASE FIN is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  16,580  in WILLIS LEASE FIN on October 24, 2024 and sell it today you would earn a total of  2,020  from holding WILLIS LEASE FIN or generate 12.18% return on investment over 90 days.

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

Nippon Steel  vs.  WILLIS LEASE FIN

Nippon Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Nippon Steel reported solid returns over the last few months and may actually be approaching a breakup point.

WILLIS LEASE FIN

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WILLIS LEASE FIN are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WILLIS LEASE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Steel and WILLIS LEASE

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

The idea behind Nippon Steel and WILLIS LEASE FIN 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.