Correlation Between Nippon Steel and Toyota Tsusho

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

By analyzing existing cross correlation between Nippon Steel and Toyota Tsusho, you can compare the effects of market volatilities on Nippon Steel and Toyota Tsusho 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 Toyota Tsusho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Steel and Toyota Tsusho.

Diversification Opportunities for Nippon Steel and Toyota Tsusho

0.62

Correlation Coefficient

Nippon Steel  Toyota Tsusho

Poor diversification

The 3 months correlation between Nippon and Toyota is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and Toyota Tsusho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Tsusho 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 are associated (or correlated) with Toyota Tsusho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Tsusho has no effect on the direction of Nippon Steel i.e., Nippon Steel and Toyota Tsusho go up and down completely randomly.

Pair Corralation between Nippon Steel and Toyota Tsusho

Assuming the 90 days horizon Nippon Steel is expected to generate 2.33 times more return on investment than Toyota Tsusho. However, Nippon Steel is 2.33 times more volatile than Toyota Tsusho. It trades about 0.11 of its potential returns per unit of risk. Toyota Tsusho is currently generating about 0.05 per unit of risk. If you would invest  1,740  in Nippon Steel on September 1, 2024 and sell it today you would earn a total of  173.00  from holding Nippon Steel or generate 9.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Nippon Steel  vs.  Toyota Tsusho

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nippon Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Toyota Tsusho

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Tsusho has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Toyota Tsusho is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nippon Steel and Toyota Tsusho

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

The idea behind Nippon Steel and Toyota Tsusho 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.