Correlation Between Nippon Steel and Insteel Industries

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

Diversification Opportunities for Nippon Steel and Insteel Industries

0.41

Correlation Coefficient

Nippon Steel  Insteel Industries

Very weak diversification

The 3 months correlation between Nippon and Insteel is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Nippon Steel i.e., Nippon Steel and Insteel Industries go up and down completely randomly.

Pair Corralation between Nippon Steel and Insteel Industries

Assuming the 90 days horizon Nippon Steel Corp is expected to generate 0.9 times more return on investment than Insteel Industries. However, Nippon Steel Corp is 1.11 times less risky than Insteel Industries. It trades about 0.02 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.01 per unit of risk. If you would invest  657.00  in Nippon Steel Corp on October 4, 2024 and sell it today you would earn a total of  40.00  from holding Nippon Steel Corp or generate 6.09% return on investment over 90 days.

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

Nippon Steel Corp  vs.  Insteel Industries

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.

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Nippon Steel and Insteel Industries

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

The idea behind Nippon Steel Corp and Insteel Industries 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.