Correlation Between Nippon Life and Thomas Scott

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

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

Diversification Opportunities for Nippon Life and Thomas Scott

0.67

Correlation Coefficient

Nippon Life  Thomas Scott

Poor diversification

The 3 months correlation between Nippon and Thomas is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Life India and Thomas Scott Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thomas Scott Limited and Nippon Life 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 Life India are associated (or correlated) with Thomas Scott. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thomas Scott Limited has no effect on the direction of Nippon Life i.e., Nippon Life and Thomas Scott go up and down completely randomly.

Pair Corralation between Nippon Life and Thomas Scott

Assuming the 90 days trading horizon Nippon Life is expected to generate 7.67 times less return on investment than Thomas Scott. But when comparing it to its historical volatility, Nippon Life India is 1.03 times less risky than Thomas Scott. It trades about 0.19 of its potential returns per unit of risk. Thomas Scott Limited is currently generating about 1.45 of returns per unit of risk over similar time horizon. If you would invest  19,536  in Thomas Scott Limited on September 22, 2024 and sell it today you would earn a total of  25,830  from holding Thomas Scott Limited or generate 132.22% return on investment over 90 days.

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

Nippon Life India  vs.  Thomas Scott Limited

Nippon Life India

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Nippon Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Thomas Scott Limited

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thomas Scott Limited are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Thomas Scott exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Life and Thomas Scott

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

The idea behind Nippon Life India and Thomas Scott Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.