Correlation Between SAL Steel and Sapphire Foods

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

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

Diversification Opportunities for SAL Steel and Sapphire Foods

0.7

Correlation Coefficient

SAL Steel  Sapphire Foods

Poor diversification

The 3 months correlation between SAL and Sapphire is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SAL Steel Limited and Sapphire Foods India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sapphire Foods India and SAL 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 SAL Steel Limited are associated (or correlated) with Sapphire Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sapphire Foods India has no effect on the direction of SAL Steel i.e., SAL Steel and Sapphire Foods go up and down completely randomly.

Pair Corralation between SAL Steel and Sapphire Foods

Assuming the 90 days trading horizon SAL Steel Limited is expected to generate 1.4 times more return on investment than Sapphire Foods. However, SAL Steel is 1.4 times more volatile than Sapphire Foods India. It trades about -0.03 of its potential returns per unit of risk. Sapphire Foods India is currently generating about -0.07 per unit of risk. If you would invest  2,670  in SAL Steel Limited on September 20, 2024 and sell it today you would lose (219.00) from holding SAL Steel Limited or give up 8.2% of portfolio value over 90 days.

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

SAL Steel Limited  vs.  Sapphire Foods India

SAL Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SAL Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, SAL Steel is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with SAL Steel and Sapphire Foods

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

The idea behind SAL Steel Limited and Sapphire Foods India 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.