Correlation Between Dost Steels and ITTEFAQ Iron

Can any of the company-specific risk be diversified away by investing in both Dost Steels and ITTEFAQ Iron 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 Dost Steels and ITTEFAQ Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Dost Steels and ITTEFAQ Iron

0.2

Correlation Coefficient

Dost Steels  ITTEFAQ Iron

Modest diversification

The 3 months correlation between Dost and ITTEFAQ is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Dost Steels and ITTEFAQ Iron Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITTEFAQ Iron Industries and Dost Steels 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 Dost Steels are associated (or correlated) with ITTEFAQ Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITTEFAQ Iron Industries has no effect on the direction of Dost Steels i.e., Dost Steels and ITTEFAQ Iron go up and down completely randomly.

Pair Corralation between Dost Steels and ITTEFAQ Iron

Assuming the 90 days trading horizon Dost Steels is expected to generate 1.03 times more return on investment than ITTEFAQ Iron. However, Dost Steels is 1.03 times more volatile than ITTEFAQ Iron Industries. It trades about 0.09 of its potential returns per unit of risk. ITTEFAQ Iron Industries is currently generating about -0.01 per unit of risk. If you would invest  587.00  in Dost Steels on August 30, 2024 and sell it today you would earn a total of  87.00  from holding Dost Steels or generate 14.82% return on investment over 90 days.

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

Dost Steels  vs.  ITTEFAQ Iron Industries

Dost Steels

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dost Steels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dost Steels reported solid returns over the last few months and may actually be approaching a breakup point.

ITTEFAQ Iron Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITTEFAQ Iron Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, ITTEFAQ Iron is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Dost Steels and ITTEFAQ Iron

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

The idea behind Dost Steels and ITTEFAQ Iron Industries 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.