Correlation Between NIPPON STEEL and CHAODA MODERN

Can any of the company-specific risk be diversified away by investing in both NIPPON STEEL and CHAODA MODERN 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 CHAODA MODERN into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NIPPON STEEL SPADR and CHAODA MODERN AGRI, you can compare the effects of market volatilities on NIPPON STEEL and CHAODA MODERN 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 CHAODA MODERN. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIPPON STEEL and CHAODA MODERN.

Diversification Opportunities for NIPPON STEEL and CHAODA MODERN

0.35

Correlation Coefficient

NIPPON STEEL  CHAODA MODERN

Weak diversification

The 3 months correlation between NIPPON and CHAODA is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and CHAODA MODERN AGRI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAODA MODERN AGRI 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 SPADR are associated (or correlated) with CHAODA MODERN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAODA MODERN AGRI has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and CHAODA MODERN go up and down completely randomly.

Pair Corralation between NIPPON STEEL and CHAODA MODERN

Assuming the 90 days trading horizon NIPPON STEEL is expected to generate 23.48 times less return on investment than CHAODA MODERN. But when comparing it to its historical volatility, NIPPON STEEL SPADR is 4.26 times less risky than CHAODA MODERN. It trades about 0.01 of its potential returns per unit of risk. CHAODA MODERN AGRI is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.00  in CHAODA MODERN AGRI on September 20, 2024 and sell it today you would lose (1.00) from holding CHAODA MODERN AGRI or give up 33.33% of portfolio value over 90 days.

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

NIPPON STEEL SPADR  vs.  CHAODA MODERN AGRI

NIPPON STEEL SPADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

CHAODA MODERN AGRI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHAODA MODERN AGRI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with NIPPON STEEL and CHAODA MODERN

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

The idea behind NIPPON STEEL SPADR and CHAODA MODERN AGRI 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.