Correlation Between POSCO Holdings and Nippon Steel

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

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

Diversification Opportunities for POSCO Holdings and Nippon Steel

0.32

Correlation Coefficient

POSCO Holdings  Nippon Steel

Weak diversification

The 3 months correlation between POSCO and Nippon is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Nippon Steel go up and down completely randomly.

Pair Corralation between POSCO Holdings and Nippon Steel

Assuming the 90 days horizon POSCO Holdings is expected to generate 1.29 times more return on investment than Nippon Steel. However, POSCO Holdings is 1.29 times more volatile than Nippon Steel. It trades about 0.08 of its potential returns per unit of risk. Nippon Steel is currently generating about 0.05 per unit of risk. If you would invest  4,100  in POSCO Holdings on December 29, 2024 and sell it today you would earn a total of  560.00  from holding POSCO Holdings or generate 13.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

POSCO Holdings  vs.  Nippon Steel

POSCO Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in POSCO Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, POSCO Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Nippon Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with POSCO Holdings and Nippon Steel

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

The idea behind POSCO Holdings and Nippon Steel 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.