Correlation Between Nippon Steel and Northern Star

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

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

Diversification Opportunities for Nippon Steel and Northern Star

-0.31

Correlation Coefficient

Nippon Steel  Northern Star

Very good diversification

The 3 months correlation between Nippon and Northern is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources 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 Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of Nippon Steel i.e., Nippon Steel and Northern Star go up and down completely randomly.

Pair Corralation between Nippon Steel and Northern Star

Assuming the 90 days trading horizon Nippon Steel is expected to generate 0.58 times more return on investment than Northern Star. However, Nippon Steel is 1.73 times less risky than Northern Star. It trades about -0.16 of its potential returns per unit of risk. Northern Star Resources is currently generating about -0.33 per unit of risk. If you would invest  1,890  in Nippon Steel on September 24, 2024 and sell it today you would lose (77.00) from holding Nippon Steel or give up 4.07% 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.  Northern Star Resources

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Northern Star is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nippon Steel and Northern Star

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

The idea behind Nippon Steel and Northern Star Resources 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.