Correlation Between City Steel and RS Public

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

Diversification Opportunities for City Steel and RS Public

0.3

Correlation Coefficient

City Steel  RS Public

Weak diversification

The 3 months correlation between City and RS-R is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding City Steel Public and RS Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RS 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 RS Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RS Public has no effect on the direction of City Steel i.e., City Steel and RS Public go up and down completely randomly.

Pair Corralation between City Steel and RS Public

Assuming the 90 days trading horizon City Steel Public is expected to under-perform the RS Public. But the stock apears to be less risky and, when comparing its historical volatility, City Steel Public is 77.47 times less risky than RS Public. The stock trades about -0.05 of its potential returns per unit of risk. The RS Public is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  720.00  in RS Public on September 12, 2024 and sell it today you would lose (135.00) from holding RS Public or give up 18.75% of portfolio value over 90 days.

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

City Steel Public  vs.  RS 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.

RS Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RS Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, RS Public disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with City Steel and RS Public

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

The idea behind City Steel Public and RS 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 Commodity Directory module to find actively traded commodities issued by global exchanges.