Correlation Between Mahamaya Steel and Steelcast

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

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

Diversification Opportunities for Mahamaya Steel and Steelcast

0.65

Correlation Coefficient

Mahamaya Steel  Steelcast

Poor diversification

The 3 months correlation between Mahamaya and Steelcast is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mahamaya Steel Industries and Steelcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steelcast Limited and Mahamaya 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 Mahamaya Steel Industries are associated (or correlated) with Steelcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steelcast Limited has no effect on the direction of Mahamaya Steel i.e., Mahamaya Steel and Steelcast go up and down completely randomly.

Pair Corralation between Mahamaya Steel and Steelcast

Assuming the 90 days trading horizon Mahamaya Steel Industries is expected to generate 0.68 times more return on investment than Steelcast. However, Mahamaya Steel Industries is 1.47 times less risky than Steelcast. It trades about 0.2 of its potential returns per unit of risk. Steelcast Limited is currently generating about 0.12 per unit of risk. If you would invest  17,448  in Mahamaya Steel Industries on September 3, 2024 and sell it today you would earn a total of  4,684  from holding Mahamaya Steel Industries or generate 26.85% return on investment over 90 days.

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

Mahamaya Steel Industries  vs.  Steelcast Limited

Mahamaya Steel Industries

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mahamaya Steel Industries are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Mahamaya Steel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Steelcast Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steelcast Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental indicators, Steelcast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mahamaya Steel and Steelcast

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

The idea behind Mahamaya Steel Industries and Steelcast Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.