Correlation Between Ezz Steel and Egyptian Iron

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

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

Diversification Opportunities for Ezz Steel and Egyptian Iron

0.4

Correlation Coefficient

Ezz Steel  Egyptian Iron

Very weak diversification

The 3 months correlation between Ezz and Egyptian is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ezz Steel and Egyptian Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Egyptian Iron Steel and Ezz 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 Ezz Steel are associated (or correlated) with Egyptian Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Egyptian Iron Steel has no effect on the direction of Ezz Steel i.e., Ezz Steel and Egyptian Iron go up and down completely randomly.

Pair Corralation between Ezz Steel and Egyptian Iron

Assuming the 90 days trading horizon Ezz Steel is expected to generate 11.57 times less return on investment than Egyptian Iron. But when comparing it to its historical volatility, Ezz Steel is 1.25 times less risky than Egyptian Iron. It trades about 0.01 of its potential returns per unit of risk. Egyptian Iron Steel is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,053  in Egyptian Iron Steel on September 3, 2024 and sell it today you would earn a total of  1,106  from holding Egyptian Iron Steel or generate 27.29% return on investment over 90 days.

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

Ezz Steel  vs.  Egyptian Iron Steel

Ezz Steel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ezz Steel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ezz Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Egyptian Iron Steel

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Egyptian Iron Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Egyptian Iron reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ezz Steel and Egyptian Iron

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

The idea behind Ezz Steel and Egyptian Iron Steel 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.