Correlation Between Nippon Steel and Monument Mining

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

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

Diversification Opportunities for Nippon Steel and Monument Mining

0.6

Correlation Coefficient

Nippon Steel  Monument Mining

Poor diversification

The 3 months correlation between Nippon and Monument is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Monument Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monument Mining 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 Monument Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monument Mining has no effect on the direction of Nippon Steel i.e., Nippon Steel and Monument Mining go up and down completely randomly.

Pair Corralation between Nippon Steel and Monument Mining

Assuming the 90 days trading horizon Nippon Steel is expected to generate 1.89 times less return on investment than Monument Mining. But when comparing it to its historical volatility, Nippon Steel is 3.02 times less risky than Monument Mining. It trades about 0.19 of its potential returns per unit of risk. Monument Mining Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Monument Mining Limited on December 21, 2024 and sell it today you would earn a total of  6.00  from holding Monument Mining Limited or generate 31.58% return on investment over 90 days.

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

Nippon Steel  vs.  Monument Mining Limited

Nippon Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nippon Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Monument Mining

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Monument Mining Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Monument Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Steel and Monument Mining

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

The idea behind Nippon Steel and Monument Mining Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.