Correlation Between Nippon Steel and CVS Health

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

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

Diversification Opportunities for Nippon Steel and CVS Health

-0.05

Correlation Coefficient

Nippon Steel  CVS Health

Good diversification

The 3 months correlation between Nippon and CVS is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of Nippon Steel i.e., Nippon Steel and CVS Health go up and down completely randomly.

Pair Corralation between Nippon Steel and CVS Health

Assuming the 90 days trading horizon Nippon Steel is expected to generate 3.18 times less return on investment than CVS Health. But when comparing it to its historical volatility, Nippon Steel is 2.46 times less risky than CVS Health. It trades about 0.09 of its potential returns per unit of risk. CVS Health is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,192  in CVS Health on August 31, 2024 and sell it today you would earn a total of  468.00  from holding CVS Health or generate 9.01% return on investment over 90 days.

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

Nippon Steel  vs.  CVS Health

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nippon Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

CVS Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVS Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CVS Health may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Nippon Steel and CVS Health

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

The idea behind Nippon Steel and CVS Health 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.