Correlation Between Steel Authority and Vedanta

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

Diversification Opportunities for Steel Authority and Vedanta

0.62

Correlation Coefficient

Steel Authority  Vedanta

Poor diversification

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

Pair Corralation between Steel Authority and Vedanta

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Vedanta. In addition to that, Steel Authority is 1.16 times more volatile than Vedanta Limited. It trades about -0.02 of its total potential returns per unit of risk. Vedanta Limited is currently generating about 0.12 per unit of volatility. If you would invest  45,405  in Vedanta Limited on September 13, 2024 and sell it today you would earn a total of  6,030  from holding Vedanta Limited or generate 13.28% return on investment over 90 days.

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

Steel Authority of  vs.  Vedanta 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vedanta Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vedanta Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vedanta unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Authority and Vedanta

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

The idea behind Steel Authority of and Vedanta 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.