Correlation Between NIPPON STEEL and National Bank

Can any of the company-specific risk be diversified away by investing in both NIPPON STEEL and National Bank 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 National Bank 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 National Bank Holdings, you can compare the effects of market volatilities on NIPPON STEEL and National Bank 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 National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIPPON STEEL and National Bank.

Diversification Opportunities for NIPPON STEEL and National Bank

-0.21

Correlation Coefficient

NIPPON STEEL  National Bank

Very good diversification

The 3 months correlation between NIPPON and National is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and National Bank go up and down completely randomly.

Pair Corralation between NIPPON STEEL and National Bank

Assuming the 90 days trading horizon NIPPON STEEL SPADR is expected to under-perform the National Bank. But the stock apears to be less risky and, when comparing its historical volatility, NIPPON STEEL SPADR is 2.03 times less risky than National Bank. The stock trades about -0.08 of its potential returns per unit of risk. The National Bank Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,577  in National Bank Holdings on September 27, 2024 and sell it today you would earn a total of  483.00  from holding National Bank Holdings or generate 13.5% return on investment over 90 days.

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

NIPPON STEEL SPADR  vs.  National Bank Holdings

NIPPON STEEL SPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIPPON STEEL SPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

National Bank Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIPPON STEEL and National Bank

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

The idea behind NIPPON STEEL SPADR and National Bank Holdings 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.