Correlation Between Nippon Steel and China Overseas

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

Diversification Opportunities for Nippon Steel and China Overseas

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Nippon and China is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel Corp and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Nippon Steel i.e., Nippon Steel and China Overseas go up and down completely randomly.

Pair Corralation between Nippon Steel and China Overseas

Assuming the 90 days horizon Nippon Steel Corp is expected to generate 0.79 times more return on investment than China Overseas. However, Nippon Steel Corp is 1.27 times less risky than China Overseas. It trades about 0.09 of its potential returns per unit of risk. China Overseas Land is currently generating about -0.11 per unit of risk. If you would invest  716.00  in Nippon Steel Corp on December 3, 2023 and sell it today you would earn a total of  130.00  from holding Nippon Steel Corp or generate 18.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.04%
ValuesDaily Returns

Nippon Steel Corp  vs.  China Overseas Land

 Performance 
       Timeline  
Nippon Steel Corp 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2024.
China Overseas Land 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days China Overseas Land has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Nippon Steel and China Overseas Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nippon Steel and China Overseas

The main advantage of trading using opposite Nippon Steel and China Overseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel position performs unexpectedly, China Overseas 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 China Overseas will offset losses from the drop in China Overseas' long position.
The idea behind Nippon Steel Corp and China Overseas Land 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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