Correlation Between Steel Authority and Indian Metals

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

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

Diversification Opportunities for Steel Authority and Indian Metals

-0.5

Correlation Coefficient

Steel Authority  Indian Metals

Very good diversification

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

Pair Corralation between Steel Authority and Indian Metals

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Indian Metals. But the stock apears to be less risky and, when comparing its historical volatility, Steel Authority of is 1.18 times less risky than Indian Metals. The stock trades about -0.1 of its potential returns per unit of risk. The Indian Metals Ferro is currently generating about 0.18 of returns per unit of risk over similar time horizon. 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

Steel Authority of  vs.  Indian Metals Ferro

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.

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.

Pair Trading with Steel Authority and Indian Metals

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

The idea behind Steel Authority of and Indian Metals Ferro 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.