Correlation Between 2S Metal and SAF Special

Can any of the company-specific risk be diversified away by investing in both 2S Metal and SAF Special 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 2S Metal and SAF Special into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 2S Metal Public and SAF Special Steel, you can compare the effects of market volatilities on 2S Metal and SAF Special 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 2S Metal with a short position of SAF Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of 2S Metal and SAF Special.

Diversification Opportunities for 2S Metal and SAF Special

0.61

Correlation Coefficient

2S Metal  SAF Special

Poor diversification

The 3 months correlation between 2S Metal and SAF is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding 2S Metal Public and SAF Special Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAF Special Steel and 2S Metal 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 2S Metal Public are associated (or correlated) with SAF Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAF Special Steel has no effect on the direction of 2S Metal i.e., 2S Metal and SAF Special go up and down completely randomly.

Pair Corralation between 2S Metal and SAF Special

Assuming the 90 days horizon 2S Metal Public is expected to under-perform the SAF Special. But the stock apears to be less risky and, when comparing its historical volatility, 2S Metal Public is 3.44 times less risky than SAF Special. The stock trades about -0.15 of its potential returns per unit of risk. The SAF Special Steel is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  56.00  in SAF Special Steel on September 3, 2024 and sell it today you would lose (1.00) from holding SAF Special Steel or give up 1.79% of portfolio value over 90 days.

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

2S Metal Public  vs.  SAF Special Steel

2S Metal Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 2S Metal Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, 2S Metal is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

SAF Special Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SAF Special Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, SAF Special disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 2S Metal and SAF Special

The main advantage of trading using opposite 2S Metal and SAF Special positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 2S Metal position performs unexpectedly, SAF Special 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 SAF Special will offset losses from the drop in SAF Special's long position.

The idea behind 2S Metal Public and SAF Special Steel 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.

Check out your portfolio center.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.