Correlation Between Western Bulk and Nippon Yusen

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

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

Diversification Opportunities for Western Bulk and Nippon Yusen

0.7

Correlation Coefficient

Western Bulk  Nippon Yusen

Poor diversification

The 3 months correlation between Western and Nippon is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Western Bulk Chartering 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 Western Bulk 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 Western Bulk Chartering 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 Western Bulk i.e., Western Bulk and Nippon Yusen go up and down completely randomly.

Pair Corralation between Western Bulk and Nippon Yusen

Assuming the 90 days horizon Western Bulk Chartering is expected to under-perform the Nippon Yusen. In addition to that, Western Bulk is 1.7 times more volatile than Nippon Yusen Kabushiki. It trades about -0.16 of its total potential returns per unit of risk. Nippon Yusen Kabushiki is currently generating about -0.04 per unit of volatility. If you would invest  690.00  in Nippon Yusen Kabushiki on September 5, 2024 and sell it today you would lose (48.00) from holding Nippon Yusen Kabushiki or give up 6.96% of portfolio value over 90 days.

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

Western Bulk Chartering  vs.  Nippon Yusen Kabushiki

Western Bulk Chartering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Bulk Chartering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Nippon Yusen Kabushiki

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Yusen Kabushiki has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Western Bulk and Nippon Yusen

The main advantage of trading using opposite Western Bulk and Nippon Yusen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Bulk 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 Western Bulk Chartering 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.