Correlation Between Rama Steel and MIRC Electronics

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

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

Diversification Opportunities for Rama Steel and MIRC Electronics

0.91

Correlation Coefficient

Rama Steel  MIRC Electronics

Almost no diversification

The 3 months correlation between Rama and MIRC is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Rama Steel Tubes and MIRC Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MIRC Electronics and Rama 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 Rama Steel Tubes are associated (or correlated) with MIRC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MIRC Electronics has no effect on the direction of Rama Steel i.e., Rama Steel and MIRC Electronics go up and down completely randomly.

Pair Corralation between Rama Steel and MIRC Electronics

Assuming the 90 days trading horizon Rama Steel is expected to generate 1.65 times less return on investment than MIRC Electronics. But when comparing it to its historical volatility, Rama Steel Tubes is 1.14 times less risky than MIRC Electronics. It trades about 0.17 of its potential returns per unit of risk. MIRC Electronics Limited is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,972  in MIRC Electronics Limited on September 17, 2024 and sell it today you would earn a total of  289.00  from holding MIRC Electronics Limited or generate 14.66% return on investment over 90 days.

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

Rama Steel Tubes  vs.  MIRC Electronics Limited

Rama Steel Tubes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rama Steel Tubes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

MIRC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MIRC Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Rama Steel and MIRC Electronics

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

The idea behind Rama Steel Tubes and MIRC Electronics 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.