Correlation Between Archean Chemical and Steel Authority

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

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

Diversification Opportunities for Archean Chemical and Steel Authority

0.35

Correlation Coefficient

Archean Chemical  Steel Authority

Weak diversification

The 3 months correlation between Archean and Steel is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Archean Chemical Industries and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority and Archean Chemical 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 Archean Chemical Industries are associated (or correlated) with Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of Archean Chemical i.e., Archean Chemical and Steel Authority go up and down completely randomly.

Pair Corralation between Archean Chemical and Steel Authority

Assuming the 90 days trading horizon Archean Chemical is expected to generate 1.6 times less return on investment than Steel Authority. But when comparing it to its historical volatility, Archean Chemical Industries is 1.18 times less risky than Steel Authority. It trades about 0.04 of its potential returns per unit of risk. Steel Authority of is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,427  in Steel Authority of on September 12, 2024 and sell it today you would earn a total of  4,254  from holding Steel Authority of or generate 50.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.38%
Values	Daily Returns

Archean Chemical Industries  vs.  Steel Authority of

Archean Chemical Ind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archean Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Archean Chemical is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Steel Authority

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Authority of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Steel Authority is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Archean Chemical and Steel Authority

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

The idea behind Archean Chemical Industries and Steel Authority of 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.