Correlation Between SCI Information and TCC Steel

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

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

Diversification Opportunities for SCI Information and TCC Steel

0.06

Correlation Coefficient

SCI Information  TCC Steel

Significant diversification

The 3 months correlation between SCI and TCC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding SCI Information Service and TCC Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCC Steel Corp and SCI Information 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 SCI Information Service are associated (or correlated) with TCC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCC Steel Corp has no effect on the direction of SCI Information i.e., SCI Information and TCC Steel go up and down completely randomly.

Pair Corralation between SCI Information and TCC Steel

Assuming the 90 days trading horizon SCI Information Service is expected to under-perform the TCC Steel. But the stock apears to be less risky and, when comparing its historical volatility, SCI Information Service is 2.52 times less risky than TCC Steel. The stock trades about -0.05 of its potential returns per unit of risk. The TCC Steel Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,906,566  in TCC Steel Corp on December 21, 2024 and sell it today you would lose (196,566) from holding TCC Steel Corp or give up 6.76% of portfolio value over 90 days.

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

SCI Information Service  vs.  TCC Steel Corp

SCI Information Service

Risk-Adjusted Performance

Very Weak

Over the last 90 days SCI Information Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SCI Information is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

TCC Steel Corp

Risk-Adjusted Performance

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 somewhat strong basic indicators, TCC Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SCI Information and TCC Steel

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

The idea behind SCI Information Service and TCC Steel 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.