Correlation Between Pacific Basin and Nippon Yusen

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

By analyzing existing cross correlation between Pacific Basin Shipping and Nippon Yusen Kabushiki, you can compare the effects of market volatilities on Pacific Basin and Nippon Yusen 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 Pacific Basin with a short position of Nippon Yusen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacific Basin and Nippon Yusen.

Diversification Opportunities for Pacific Basin and Nippon Yusen

0.26

Correlation Coefficient

Pacific Basin  Nippon Yusen

Modest diversification

The 3 months correlation between Pacific and Nippon is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Basin Shipping and Nippon Yusen Kabushiki in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Yusen Kabushiki and Pacific Basin 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 Pacific Basin Shipping are associated (or correlated) with Nippon Yusen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Yusen Kabushiki has no effect on the direction of Pacific Basin i.e., Pacific Basin and Nippon Yusen go up and down completely randomly.

Pair Corralation between Pacific Basin and Nippon Yusen

Assuming the 90 days horizon Pacific Basin Shipping is expected to generate 3.5 times more return on investment than Nippon Yusen. However, Pacific Basin is 3.5 times more volatile than Nippon Yusen Kabushiki. It trades about 0.04 of its potential returns per unit of risk. Nippon Yusen Kabushiki is currently generating about 0.04 per unit of risk. If you would invest  425.00  in Pacific Basin Shipping on December 29, 2024 and sell it today you would earn a total of  14.00  from holding Pacific Basin Shipping or generate 3.29% return on investment over 90 days.

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

Pacific Basin Shipping  vs.  Nippon Yusen Kabushiki

Pacific Basin Shipping

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Basin Shipping are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Pacific Basin showed solid returns over the last few months and may actually be approaching a breakup point.

Nippon Yusen Kabushiki

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Yusen Kabushiki are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Nippon Yusen is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pacific Basin and Nippon Yusen

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

The idea behind Pacific Basin Shipping and Nippon Yusen Kabushiki 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.