Correlation Between NIPPON STEEL and ECHO INVESTMENT

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

By analyzing existing cross correlation between NIPPON STEEL SPADR and ECHO INVESTMENT ZY, you can compare the effects of market volatilities on NIPPON STEEL and ECHO INVESTMENT 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 ECHO INVESTMENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIPPON STEEL and ECHO INVESTMENT.

Diversification Opportunities for NIPPON STEEL and ECHO INVESTMENT

-0.29

Correlation Coefficient

NIPPON STEEL  ECHO INVESTMENT

Very good diversification

The 3 months correlation between NIPPON and ECHO is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and ECHO INVESTMENT ZY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECHO INVESTMENT ZY 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 SPADR are associated (or correlated) with ECHO INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECHO INVESTMENT ZY has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and ECHO INVESTMENT go up and down completely randomly.

Pair Corralation between NIPPON STEEL and ECHO INVESTMENT

Assuming the 90 days trading horizon NIPPON STEEL SPADR is expected to generate 0.83 times more return on investment than ECHO INVESTMENT. However, NIPPON STEEL SPADR is 1.21 times less risky than ECHO INVESTMENT. It trades about -0.03 of its potential returns per unit of risk. ECHO INVESTMENT ZY is currently generating about -0.09 per unit of risk. If you would invest  615.00  in NIPPON STEEL SPADR on September 12, 2024 and sell it today you would lose (5.00) from holding NIPPON STEEL SPADR or give up 0.81% of portfolio value over 90 days.

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

NIPPON STEEL SPADR  vs.  ECHO INVESTMENT ZY

NIPPON STEEL SPADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NIPPON STEEL SPADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

ECHO INVESTMENT ZY

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ECHO INVESTMENT ZY are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ECHO INVESTMENT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NIPPON STEEL and ECHO INVESTMENT

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

The idea behind NIPPON STEEL SPADR and ECHO INVESTMENT ZY 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.