Correlation Between Nippon Yusen and Pacific Basin

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

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

Diversification Opportunities for Nippon Yusen and Pacific Basin

0.22

Correlation Coefficient

Nippon Yusen  Pacific Basin

Modest diversification

The 3 months correlation between Nippon and Pacific is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Yusen Kabushiki and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping and Nippon Yusen 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 Yusen Kabushiki are associated (or correlated) with Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Nippon Yusen i.e., Nippon Yusen and Pacific Basin go up and down completely randomly.

Pair Corralation between Nippon Yusen and Pacific Basin

Assuming the 90 days horizon Nippon Yusen Kabushiki is expected to under-perform the Pacific Basin. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nippon Yusen Kabushiki is 2.37 times less risky than Pacific Basin. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Pacific Basin Shipping is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Pacific Basin Shipping on September 12, 2024 and sell it today you would earn a total of  55.00  from holding Pacific Basin Shipping or generate 11.0% return on investment over 90 days.

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

Nippon Yusen Kabushiki  vs.  Pacific Basin Shipping

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.

Pacific Basin Shipping

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Basin Shipping are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Pacific Basin showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nippon Yusen and Pacific Basin

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

The idea behind Nippon Yusen Kabushiki and Pacific Basin Shipping 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..