Correlation Between Nippon Steel and Ribbon Communications

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

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

Diversification Opportunities for Nippon Steel and Ribbon Communications

0.3

Correlation Coefficient

Nippon Steel  Ribbon Communications

Weak diversification

The 3 months correlation between Nippon and Ribbon is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Nippon Steel i.e., Nippon Steel and Ribbon Communications go up and down completely randomly.

Pair Corralation between Nippon Steel and Ribbon Communications

Assuming the 90 days trading horizon Nippon Steel is expected to generate 0.4 times more return on investment than Ribbon Communications. However, Nippon Steel is 2.5 times less risky than Ribbon Communications. It trades about 0.08 of its potential returns per unit of risk. Ribbon Communications is currently generating about -0.01 per unit of risk. If you would invest  1,868  in Nippon Steel on December 30, 2024 and sell it today you would earn a total of  126.00  from holding Nippon Steel or generate 6.75% return on investment over 90 days.

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

Nippon Steel  vs.  Ribbon Communications

Nippon Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ribbon Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ribbon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ribbon Communications 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 Ribbon Communications

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

The idea behind Nippon Steel and Ribbon Communications 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.