Correlation Between Nippon Steel and ArcelorMittal

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

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

Diversification Opportunities for Nippon Steel and ArcelorMittal

0.26

Correlation Coefficient

Nippon Steel  ArcelorMittal

Modest diversification

The 3 months correlation between Nippon and ArcelorMittal is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel and ArcelorMittal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal SA has no effect on the direction of Nippon Steel i.e., Nippon Steel and ArcelorMittal go up and down completely randomly.

Pair Corralation between Nippon Steel and ArcelorMittal

Assuming the 90 days horizon Nippon Steel is expected to generate 1.38 times more return on investment than ArcelorMittal. However, Nippon Steel is 1.38 times more volatile than ArcelorMittal SA. It trades about -0.03 of its potential returns per unit of risk. ArcelorMittal SA is currently generating about -0.19 per unit of risk. If you would invest  1,825  in Nippon Steel on September 23, 2024 and sell it today you would lose (44.00) from holding Nippon Steel or give up 2.41% of portfolio value over 90 days.

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

Nippon Steel  vs.  ArcelorMittal SA

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.

ArcelorMittal SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ArcelorMittal 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 ArcelorMittal

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

The idea behind Nippon Steel and ArcelorMittal SA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.