Correlation Between TCC Steel and Union Materials

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

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

Diversification Opportunities for TCC Steel and Union Materials

0.37

Correlation Coefficient

TCC Steel  Union Materials

Weak diversification

The 3 months correlation between TCC and Union is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding TCC Steel Corp and Union Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Materials Corp and TCC 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 TCC Steel Corp are associated (or correlated) with Union Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Materials Corp has no effect on the direction of TCC Steel i.e., TCC Steel and Union Materials go up and down completely randomly.

Pair Corralation between TCC Steel and Union Materials

Assuming the 90 days trading horizon TCC Steel is expected to generate 2.61 times less return on investment than Union Materials. In addition to that, TCC Steel is 1.43 times more volatile than Union Materials Corp. It trades about 0.06 of its total potential returns per unit of risk. Union Materials Corp is currently generating about 0.23 per unit of volatility. If you would invest  206,500  in Union Materials Corp on October 8, 2024 and sell it today you would earn a total of  21,000  from holding Union Materials Corp or generate 10.17% return on investment over 90 days.

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

TCC Steel Corp  vs.  Union Materials Corp

TCC Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TCC Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Union Materials Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Union Materials Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TCC Steel and Union Materials

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

The idea behind TCC Steel Corp and Union Materials Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.