Correlation Between Nippon Steel and Hawkins

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

Diversification Opportunities for Nippon Steel and Hawkins

0.31

Correlation Coefficient

Nippon Steel  Hawkins

Weak diversification

The 3 months correlation between Nippon and Hawkins is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and Hawkins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawkins 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 Hawkins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawkins has no effect on the direction of Nippon Steel i.e., Nippon Steel and Hawkins go up and down completely randomly.

Pair Corralation between Nippon Steel and Hawkins

Assuming the 90 days horizon Nippon Steel is expected to generate 8.39 times less return on investment than Hawkins. But when comparing it to its historical volatility, Nippon Steel Corp is 1.22 times less risky than Hawkins. It trades about 0.02 of its potential returns per unit of risk. Hawkins is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,821  in Hawkins on October 4, 2024 and sell it today you would earn a total of  8,236  from holding Hawkins or generate 215.55% return on investment over 90 days.

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

Nippon Steel Corp  vs.  Hawkins

Nippon Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Nippon Steel is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Hawkins

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hawkins has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, Hawkins is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nippon Steel and Hawkins

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

The idea behind Nippon Steel Corp and Hawkins 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.