Correlation Between Osaka Steel and Air Products

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

By analyzing existing cross correlation between Osaka Steel Co, and Air Products and, you can compare the effects of market volatilities on Osaka Steel and Air Products 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 Osaka Steel with a short position of Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Osaka Steel and Air Products.

Diversification Opportunities for Osaka Steel and Air Products

0.75

Correlation Coefficient

Osaka Steel  Air Products

Poor diversification

The 3 months correlation between Osaka and Air is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Osaka Steel Co, and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and Osaka 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 Osaka Steel Co, are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Osaka Steel i.e., Osaka Steel and Air Products go up and down completely randomly.

Pair Corralation between Osaka Steel and Air Products

Assuming the 90 days horizon Osaka Steel is expected to generate 7.24 times less return on investment than Air Products. But when comparing it to its historical volatility, Osaka Steel Co, is 30.67 times less risky than Air Products. It trades about 0.06 of its potential returns per unit of risk. Air Products and is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  29,679  in Air Products and on September 13, 2024 and sell it today you would earn a total of  1,557  from holding Air Products and or generate 5.25% return on investment over 90 days.

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

Osaka Steel Co,  vs.  Air Products and

Osaka Steel Co,

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Osaka Steel Co, are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Osaka Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Air Products

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Osaka Steel and Air Products

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

The idea behind Osaka Steel Co, and Air Products and 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.

Check out your portfolio center.

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.