Correlation Between NIPPON STEEL and CSL

Can any of the company-specific risk be diversified away by investing in both NIPPON STEEL and CSL 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 CSL 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 CSL Limited, you can compare the effects of market volatilities on NIPPON STEEL and CSL 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 CSL. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIPPON STEEL and CSL.

Diversification Opportunities for NIPPON STEEL and CSL

-0.01

Correlation Coefficient

NIPPON STEEL  CSL

Good diversification

The 3 months correlation between NIPPON and CSL is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and CSL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL Limited 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 CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL Limited has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and CSL go up and down completely randomly.

Pair Corralation between NIPPON STEEL and CSL

Assuming the 90 days trading horizon NIPPON STEEL SPADR is expected to generate 1.17 times more return on investment than CSL. However, NIPPON STEEL is 1.17 times more volatile than CSL Limited. It trades about -0.04 of its potential returns per unit of risk. CSL Limited is currently generating about -0.07 per unit of risk. If you would invest  640.00  in NIPPON STEEL SPADR on October 4, 2024 and sell it today you would lose (25.00) from holding NIPPON STEEL SPADR or give up 3.91% of portfolio value over 90 days.

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

NIPPON STEEL SPADR  vs.  CSL Limited

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.

CSL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind NIPPON STEEL SPADR and CSL Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.