Correlation Between Nippon Steel and Phillips

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Can any of the company-specific risk be diversified away by investing in both Nippon Steel and Phillips 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 Phillips into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nippon Steel and Phillips 66, you can compare the effects of market volatilities on Nippon Steel and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and Phillips.

Diversification Opportunities for Nippon Steel and Phillips

NipponPhillipsDiversified AwayNipponPhillipsDiversified Away100%
0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between Nippon and Phillips is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Nippon Steel i.e., Nippon Steel and Phillips go up and down completely randomly.

Pair Corralation between Nippon Steel and Phillips

Assuming the 90 days trading horizon Nippon Steel is expected to generate 0.93 times more return on investment than Phillips. However, Nippon Steel is 1.08 times less risky than Phillips. It trades about 0.13 of its potential returns per unit of risk. Phillips 66 is currently generating about -0.01 per unit of risk. If you would invest  1,851  in Nippon Steel on November 15, 2024 and sell it today you would earn a total of  251.00  from holding Nippon Steel or generate 13.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy98.33%
ValuesDaily Returns

Nippon Steel  vs.  Phillips 66

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -10-50510
JavaScript chart by amCharts 3.21.15NPS R66
       Timeline  
Nippon Steel 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 10 (%) 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1818.51919.52020.52121.5
Phillips 66 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Phillips is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb105110115120125130

Nippon Steel and Phillips Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.38-4.03-2.68-1.330.02391.412.844.275.7 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15NPS R66
       Returns  

Pair Trading with Nippon Steel and Phillips

The main advantage of trading using opposite Nippon Steel and Phillips positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel position performs unexpectedly, Phillips 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 Phillips will offset losses from the drop in Phillips' long position.
The idea behind Nippon Steel and Phillips 66 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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