Correlation Between Nippon Steel and AerCap Holdings

Can any of the company-specific risk be diversified away by investing in both Nippon Steel and AerCap Holdings 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 AerCap Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nippon Steel Corp and AerCap Holdings NV, you can compare the effects of market volatilities on Nippon Steel and AerCap Holdings 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 AerCap Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and AerCap Holdings.

Diversification Opportunities for Nippon Steel and AerCap Holdings

0.8

Correlation Coefficient

Nippon Steel  AerCap Holdings

Very poor diversification

The 3 months correlation between Nippon and AerCap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and AerCap Holdings NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AerCap Holdings NV 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 Corp are associated (or correlated) with AerCap Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AerCap Holdings NV has no effect on the direction of Nippon Steel i.e., Nippon Steel and AerCap Holdings go up and down completely randomly.

Pair Corralation between Nippon Steel and AerCap Holdings

Assuming the 90 days horizon Nippon Steel Corp is expected to generate 0.98 times more return on investment than AerCap Holdings. However, Nippon Steel Corp is 1.02 times less risky than AerCap Holdings. It trades about 0.25 of its potential returns per unit of risk. AerCap Holdings NV is currently generating about 0.13 per unit of risk. If you would invest  646.00  in Nippon Steel Corp on December 20, 2024 and sell it today you would earn a total of  138.00  from holding Nippon Steel Corp or generate 21.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Nippon Steel Corp  vs.  AerCap Holdings NV

Nippon Steel Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Nippon Steel showed solid returns over the last few months and may actually be approaching a breakup point.

AerCap Holdings NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AerCap Holdings NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, AerCap Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nippon Steel and AerCap Holdings

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

The idea behind Nippon Steel Corp and AerCap Holdings NV 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.