Correlation Between Steel Authority and Thirumalai Chemicals

Can any of the company-specific risk be diversified away by investing in both Steel Authority and Thirumalai Chemicals 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 Thirumalai Chemicals 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 Thirumalai Chemicals Limited, you can compare the effects of market volatilities on Steel Authority and Thirumalai Chemicals 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 Thirumalai Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Authority and Thirumalai Chemicals.

Diversification Opportunities for Steel Authority and Thirumalai Chemicals

0.07

Correlation Coefficient

Steel Authority  Thirumalai Chemicals

Significant diversification

The 3 months correlation between Steel and Thirumalai is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Thirumalai Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thirumalai Chemicals 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 Thirumalai Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thirumalai Chemicals has no effect on the direction of Steel Authority i.e., Steel Authority and Thirumalai Chemicals go up and down completely randomly.

Pair Corralation between Steel Authority and Thirumalai Chemicals

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Thirumalai Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Steel Authority of is 1.23 times less risky than Thirumalai Chemicals. The stock trades about -0.01 of its potential returns per unit of risk. The Thirumalai Chemicals Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  32,850  in Thirumalai Chemicals Limited on September 12, 2024 and sell it today you would earn a total of  4,170  from holding Thirumalai Chemicals Limited or generate 12.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Steel Authority of  vs.  Thirumalai Chemicals Limited

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 comparatively stable basic indicators, Steel Authority is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Thirumalai Chemicals

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Thirumalai Chemicals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Authority and Thirumalai Chemicals

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

The idea behind Steel Authority of and Thirumalai Chemicals 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.