Correlation Between City Steel and Ichitan Group

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

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

Diversification Opportunities for City Steel and Ichitan Group

0.63

Correlation Coefficient

City Steel  Ichitan Group

Poor diversification

The 3 months correlation between City and Ichitan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding City Steel Public and Ichitan Group Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ichitan Group Public and City 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 City Steel Public are associated (or correlated) with Ichitan Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ichitan Group Public has no effect on the direction of City Steel i.e., City Steel and Ichitan Group go up and down completely randomly.

Pair Corralation between City Steel and Ichitan Group

Assuming the 90 days trading horizon City Steel Public is expected to under-perform the Ichitan Group. But the stock apears to be less risky and, when comparing its historical volatility, City Steel Public is 1.21 times less risky than Ichitan Group. The stock trades about -0.26 of its potential returns per unit of risk. The Ichitan Group Public is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  1,585  in Ichitan Group Public on September 12, 2024 and sell it today you would lose (95.00) from holding Ichitan Group Public or give up 5.99% of portfolio value over 90 days.

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

City Steel Public  vs.  Ichitan Group Public

City Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, City Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Ichitan Group Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ichitan Group Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Ichitan Group is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with City Steel and Ichitan Group

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

The idea behind City Steel Public and Ichitan Group Public 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.