Correlation Between Nippon Steel and AECOM TECHNOLOGY

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

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

Diversification Opportunities for Nippon Steel and AECOM TECHNOLOGY

-0.08

Correlation Coefficient

Nippon Steel  AECOM TECHNOLOGY

Good diversification

The 3 months correlation between Nippon and AECOM is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and AECOM TECHNOLOGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECOM TECHNOLOGY 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 AECOM TECHNOLOGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECOM TECHNOLOGY has no effect on the direction of Nippon Steel i.e., Nippon Steel and AECOM TECHNOLOGY go up and down completely randomly.

Pair Corralation between Nippon Steel and AECOM TECHNOLOGY

Assuming the 90 days trading horizon Nippon Steel is expected to generate 2.2 times more return on investment than AECOM TECHNOLOGY. However, Nippon Steel is 2.2 times more volatile than AECOM TECHNOLOGY. It trades about -0.02 of its potential returns per unit of risk. AECOM TECHNOLOGY is currently generating about -0.16 per unit of risk. If you would invest  1,900  in Nippon Steel on October 11, 2024 and sell it today you would lose (17.00) from holding Nippon Steel or give up 0.89% of portfolio value over 90 days.

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

Nippon Steel  vs.  AECOM TECHNOLOGY

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.

AECOM TECHNOLOGY

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AECOM TECHNOLOGY are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, AECOM TECHNOLOGY may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Nippon Steel and AECOM TECHNOLOGY

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

The idea behind Nippon Steel and AECOM TECHNOLOGY 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.