Correlation Between NIPPON STEEL and Tsingtao Brewery

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

Diversification Opportunities for NIPPON STEEL and Tsingtao Brewery

0.49

Correlation Coefficient

NIPPON STEEL  Tsingtao Brewery

Very weak diversification

The 3 months correlation between NIPPON and Tsingtao is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and Tsingtao Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsingtao Brewery 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 Tsingtao Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsingtao Brewery has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and Tsingtao Brewery go up and down completely randomly.

Pair Corralation between NIPPON STEEL and Tsingtao Brewery

Assuming the 90 days trading horizon NIPPON STEEL is expected to generate 12.46 times less return on investment than Tsingtao Brewery. But when comparing it to its historical volatility, NIPPON STEEL SPADR is 3.14 times less risky than Tsingtao Brewery. It trades about 0.04 of its potential returns per unit of risk. Tsingtao Brewery is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  461.00  in Tsingtao Brewery on September 14, 2024 and sell it today you would earn a total of  201.00  from holding Tsingtao Brewery or generate 43.6% return on investment over 90 days.

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

NIPPON STEEL SPADR  vs.  Tsingtao Brewery

NIPPON STEEL SPADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NIPPON STEEL SPADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Tsingtao Brewery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tsingtao Brewery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tsingtao Brewery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIPPON STEEL and Tsingtao Brewery

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

The idea behind NIPPON STEEL SPADR and Tsingtao Brewery 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.