Correlation Between Indian Metals and Steel Authority

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

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

Diversification Opportunities for Indian Metals and Steel Authority

-0.5

Correlation Coefficient

Indian Metals  Steel Authority

Very good diversification

The 3 months correlation between Indian and Steel is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority and Indian Metals 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 Indian Metals Ferro are associated (or correlated) with Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of Indian Metals i.e., Indian Metals and Steel Authority go up and down completely randomly.

Pair Corralation between Indian Metals and Steel Authority

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.18 times more return on investment than Steel Authority. However, Indian Metals is 1.18 times more volatile than Steel Authority of. It trades about 0.18 of its potential returns per unit of risk. Steel Authority of is currently generating about -0.1 per unit of risk. If you would invest  65,274  in Indian Metals Ferro on August 31, 2024 and sell it today you would earn a total of  18,786  from holding Indian Metals Ferro or generate 28.78% return on investment over 90 days.

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

Indian Metals Ferro  vs.  Steel Authority of

Indian Metals Ferro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Steel Authority

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Authority of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Indian Metals and Steel Authority

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

The idea behind Indian Metals Ferro and Steel Authority of 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.