Correlation Between Embassy Office and MSP Steel

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

By analyzing existing cross correlation between Embassy Office Parks and MSP Steel Power, you can compare the effects of market volatilities on Embassy Office and MSP Steel 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 Embassy Office with a short position of MSP Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embassy Office and MSP Steel.

Diversification Opportunities for Embassy Office and MSP Steel

0.43

Correlation Coefficient

Embassy Office  MSP Steel

Very weak diversification

The 3 months correlation between Embassy and MSP is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Embassy Office Parks and MSP Steel Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSP Steel Power and Embassy Office 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 Embassy Office Parks are associated (or correlated) with MSP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSP Steel Power has no effect on the direction of Embassy Office i.e., Embassy Office and MSP Steel go up and down completely randomly.

Pair Corralation between Embassy Office and MSP Steel

Assuming the 90 days trading horizon Embassy Office Parks is expected to under-perform the MSP Steel. But the stock apears to be less risky and, when comparing its historical volatility, Embassy Office Parks is 3.57 times less risky than MSP Steel. The stock trades about -0.04 of its potential returns per unit of risk. The MSP Steel Power is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,057  in MSP Steel Power on August 30, 2024 and sell it today you would earn a total of  419.00  from holding MSP Steel Power or generate 10.33% return on investment over 90 days.

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

Embassy Office Parks  vs.  MSP Steel Power

Embassy Office Parks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embassy Office Parks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Embassy Office is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MSP Steel Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MSP Steel Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MSP Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Embassy Office and MSP Steel

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

The idea behind Embassy Office Parks and MSP Steel Power 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.