Correlation Between Nippon Steel and Kaiser Aluminum

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

Diversification Opportunities for Nippon Steel and Kaiser Aluminum

-0.06

Correlation Coefficient

Nippon Steel  Kaiser Aluminum

Good diversification

The 3 months correlation between Nippon and Kaiser is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Nippon Steel i.e., Nippon Steel and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Nippon Steel and Kaiser Aluminum

Assuming the 90 days horizon Nippon Steel Corp is expected to generate 1.02 times more return on investment than Kaiser Aluminum. However, Nippon Steel is 1.02 times more volatile than Kaiser Aluminum. It trades about 0.07 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.47 per unit of risk. If you would invest  680.00  in Nippon Steel Corp on October 9, 2024 and sell it today you would earn a total of  12.00  from holding Nippon Steel Corp or generate 1.76% return on investment over 90 days.

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

Nippon Steel Corp  vs.  Kaiser Aluminum

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.

Kaiser Aluminum

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Kaiser Aluminum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Nippon Steel and Kaiser Aluminum

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

The idea behind Nippon Steel Corp and Kaiser Aluminum 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.