Correlation Between SAL Steel and Zenith Steel

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

Diversification Opportunities for SAL Steel and Zenith Steel

0.45

Correlation Coefficient

SAL Steel  Zenith Steel

Very weak diversification

The 3 months correlation between SAL and Zenith is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding SAL Steel Limited and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes 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 Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of SAL Steel i.e., SAL Steel and Zenith Steel go up and down completely randomly.

Pair Corralation between SAL Steel and Zenith Steel

Assuming the 90 days trading horizon SAL Steel Limited is expected to generate 1.45 times more return on investment than Zenith Steel. However, SAL Steel is 1.45 times more volatile than Zenith Steel Pipes. It trades about 0.04 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about -0.06 per unit of risk. If you would invest  2,292  in SAL Steel Limited on September 4, 2024 and sell it today you would earn a total of  95.00  from holding SAL Steel Limited or generate 4.14% return on investment over 90 days.

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

SAL Steel Limited  vs.  Zenith Steel Pipes

SAL Steel Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SAL Steel Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, SAL Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with SAL Steel and Zenith Steel

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

The idea behind SAL Steel Limited and Zenith Steel Pipes 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.