Correlation Between NIPPON STEEL and TAL Education

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

Diversification Opportunities for NIPPON STEEL and TAL Education

-0.32

Correlation Coefficient

NIPPON STEEL  TAL Education

Very good diversification

The 3 months correlation between NIPPON and TAL is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding NIPPON STEEL SPADR and TAL Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAL Education Group 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 TAL Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAL Education Group has no effect on the direction of NIPPON STEEL i.e., NIPPON STEEL and TAL Education go up and down completely randomly.

Pair Corralation between NIPPON STEEL and TAL Education

Assuming the 90 days trading horizon NIPPON STEEL SPADR is expected to generate 0.39 times more return on investment than TAL Education. However, NIPPON STEEL SPADR is 2.53 times less risky than TAL Education. It trades about 0.15 of its potential returns per unit of risk. TAL Education Group is currently generating about -0.13 per unit of risk. If you would invest  590.00  in NIPPON STEEL SPADR on September 5, 2024 and sell it today you would earn a total of  25.00  from holding NIPPON STEEL SPADR or generate 4.24% 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.  TAL Education Group

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 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.

TAL Education Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, TAL Education unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIPPON STEEL and TAL Education

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

The idea behind NIPPON STEEL SPADR and TAL Education Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.