Correlation Between Millcon Steel and MCS Steel

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

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

Diversification Opportunities for Millcon Steel and MCS Steel

0.62

Correlation Coefficient

Millcon Steel  MCS Steel

Poor diversification

The 3 months correlation between Millcon and MCS is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Millcon Steel Public and MCS Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCS Steel Public and Millcon 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 Millcon Steel Public are associated (or correlated) with MCS Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCS Steel Public has no effect on the direction of Millcon Steel i.e., Millcon Steel and MCS Steel go up and down completely randomly.

Pair Corralation between Millcon Steel and MCS Steel

Assuming the 90 days trading horizon Millcon Steel Public is expected to under-perform the MCS Steel. In addition to that, Millcon Steel is 5.68 times more volatile than MCS Steel Public. It trades about -0.03 of its total potential returns per unit of risk. MCS Steel Public is currently generating about -0.07 per unit of volatility. If you would invest  740.00  in MCS Steel Public on September 13, 2024 and sell it today you would lose (40.00) from holding MCS Steel Public or give up 5.41% of portfolio value over 90 days.

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

Millcon Steel Public  vs.  MCS Steel Public

Millcon Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Millcon Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

MCS Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MCS Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, MCS Steel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Millcon Steel and MCS Steel

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

The idea behind Millcon Steel Public and MCS Steel Public 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.