Correlation Between NIPPON STEEL and COSTCO WHOLESALE

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

Diversification Opportunities for NIPPON STEEL and COSTCO WHOLESALE

0.66

Correlation Coefficient

NIPPON STEEL  COSTCO WHOLESALE

Poor diversification

The 3 months correlation between NIPPON and COSTCO is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR 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 COSTCO WHOLESALE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSTCO WHOLESALE CDR has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between NIPPON STEEL and COSTCO WHOLESALE

Assuming the 90 days trading horizon NIPPON STEEL is expected to generate 2.6 times less return on investment than COSTCO WHOLESALE. In addition to that, NIPPON STEEL is 1.81 times more volatile than COSTCO WHOLESALE CDR. It trades about 0.02 of its total potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about 0.11 per unit of volatility. If you would invest  1,489  in COSTCO WHOLESALE CDR on December 4, 2024 and sell it today you would earn a total of  1,711  from holding COSTCO WHOLESALE CDR or generate 114.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

NIPPON STEEL SPADR  vs.  COSTCO WHOLESALE CDR

NIPPON STEEL SPADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NIPPON STEEL SPADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NIPPON STEEL reported solid returns over the last few months and may actually be approaching a breakup point.

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, COSTCO WHOLESALE 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 COSTCO WHOLESALE

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

The idea behind NIPPON STEEL SPADR and COSTCO WHOLESALE CDR 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.