Correlation Between CECO ENVIRONMENTAL and NIPPON STEEL

Can any of the company-specific risk be diversified away by investing in both CECO ENVIRONMENTAL 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 CECO ENVIRONMENTAL and NIPPON STEEL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CECO ENVIRONMENTAL and NIPPON STEEL SPADR, you can compare the effects of market volatilities on CECO ENVIRONMENTAL 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 CECO ENVIRONMENTAL with a short position of NIPPON STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO ENVIRONMENTAL and NIPPON STEEL.

Diversification Opportunities for CECO ENVIRONMENTAL and NIPPON STEEL

0.14

Correlation Coefficient

CECO ENVIRONMENTAL  NIPPON STEEL

Average diversification

The 3 months correlation between CECO and NIPPON is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding CECO ENVIRONMENTAL and NIPPON STEEL SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON STEEL SPADR and CECO ENVIRONMENTAL 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 CECO ENVIRONMENTAL 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 SPADR has no effect on the direction of CECO ENVIRONMENTAL i.e., CECO ENVIRONMENTAL and NIPPON STEEL go up and down completely randomly.

Pair Corralation between CECO ENVIRONMENTAL and NIPPON STEEL

Assuming the 90 days trading horizon CECO ENVIRONMENTAL is expected to generate 2.33 times more return on investment than NIPPON STEEL. However, CECO ENVIRONMENTAL is 2.33 times more volatile than NIPPON STEEL SPADR. It trades about 0.1 of its potential returns per unit of risk. NIPPON STEEL SPADR is currently generating about -0.08 per unit of risk. If you would invest  2,466  in CECO ENVIRONMENTAL on September 3, 2024 and sell it today you would earn a total of  532.00  from holding CECO ENVIRONMENTAL or generate 21.57% return on investment over 90 days.

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

CECO ENVIRONMENTAL  vs.  NIPPON STEEL SPADR

CECO ENVIRONMENTAL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CECO ENVIRONMENTAL are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CECO ENVIRONMENTAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

NIPPON STEEL SPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIPPON STEEL SPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CECO ENVIRONMENTAL and NIPPON STEEL

The main advantage of trading using opposite CECO ENVIRONMENTAL and NIPPON STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CECO ENVIRONMENTAL 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 CECO ENVIRONMENTAL and NIPPON STEEL SPADR 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.

Check out your portfolio center.

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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.