Correlation Between Bodal Chemicals and Steel Authority

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

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

Diversification Opportunities for Bodal Chemicals and Steel Authority

0.76

Correlation Coefficient

Bodal Chemicals  Steel Authority

Poor diversification

The 3 months correlation between Bodal and Steel is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bodal Chemicals Limited and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority and Bodal Chemicals 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 Bodal Chemicals Limited 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 Bodal Chemicals i.e., Bodal Chemicals and Steel Authority go up and down completely randomly.

Pair Corralation between Bodal Chemicals and Steel Authority

Assuming the 90 days trading horizon Bodal Chemicals Limited is expected to generate 0.93 times more return on investment than Steel Authority. However, Bodal Chemicals Limited is 1.07 times less risky than Steel Authority. It trades about -0.11 of its potential returns per unit of risk. Steel Authority of is currently generating about -0.11 per unit of risk. If you would invest  7,998  in Bodal Chemicals Limited on September 26, 2024 and sell it today you would lose (1,067) from holding Bodal Chemicals Limited or give up 13.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Bodal Chemicals Limited  vs.  Steel Authority of

Bodal Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bodal Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Bodal Chemicals and Steel Authority

The main advantage of trading using opposite Bodal Chemicals and Steel Authority positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bodal Chemicals 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 Bodal Chemicals Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.