Correlation Between Nippon Steel and GENERAL

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

Diversification Opportunities for Nippon Steel and GENERAL

0.54

Correlation Coefficient

Nippon Steel  GENERAL

Very weak diversification

The 3 months correlation between Nippon and GENERAL is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Nippon Steel i.e., Nippon Steel and GENERAL go up and down completely randomly.

Pair Corralation between Nippon Steel and GENERAL

Assuming the 90 days horizon Nippon Steel Corp is expected to generate 1.38 times more return on investment than GENERAL. However, Nippon Steel is 1.38 times more volatile than GENERAL ELEC CAP. It trades about 0.27 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.01 per unit of risk. If you would invest  635.00  in Nippon Steel Corp on December 23, 2024 and sell it today you would earn a total of  147.00  from holding Nippon Steel Corp or generate 23.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	50.82%
Values	Daily Returns

Nippon Steel Corp  vs.  GENERAL ELEC CAP

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 20 (%) 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.

GENERAL ELEC CAP

Risk-Adjusted Performance

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nippon Steel and GENERAL

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

The idea behind Nippon Steel Corp and GENERAL ELEC CAP 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.