Correlation Between International Steels and Oil

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

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

Diversification Opportunities for International Steels and Oil

0.59

Correlation Coefficient

International Steels  Oil

Very weak diversification

The 3 months correlation between International and Oil is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas and International 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 International Steels are associated (or correlated) with Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of International Steels i.e., International Steels and Oil go up and down completely randomly.

Pair Corralation between International Steels and Oil

Assuming the 90 days trading horizon International Steels is expected to generate 5.85 times less return on investment than Oil. In addition to that, International Steels is 1.05 times more volatile than Oil and Gas. It trades about 0.05 of its total potential returns per unit of risk. Oil and Gas is currently generating about 0.29 per unit of volatility. If you would invest  12,766  in Oil and Gas on August 30, 2024 and sell it today you would earn a total of  6,063  from holding Oil and Gas or generate 47.49% return on investment over 90 days.

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

International Steels  vs.  Oil and Gas

International Steels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, International Steels may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Oil and Gas

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Steels and Oil

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

The idea behind International Steels and Oil and Gas 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.