Correlation Between Industrial Securities and Western Metal

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

By analyzing existing cross correlation between Industrial Securities Co and Western Metal Materials, you can compare the effects of market volatilities on Industrial Securities and Western Metal 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 Industrial Securities with a short position of Western Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Securities and Western Metal.

Diversification Opportunities for Industrial Securities and Western Metal

0.91

Correlation Coefficient

Industrial Securities  Western Metal

Almost no diversification

The 3 months correlation between Industrial and Western is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Securities Co and Western Metal Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Metal Materials and Industrial Securities 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 Industrial Securities Co are associated (or correlated) with Western Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Metal Materials has no effect on the direction of Industrial Securities i.e., Industrial Securities and Western Metal go up and down completely randomly.

Pair Corralation between Industrial Securities and Western Metal

Assuming the 90 days trading horizon Industrial Securities Co is expected to generate 1.01 times more return on investment than Western Metal. However, Industrial Securities is 1.01 times more volatile than Western Metal Materials. It trades about 0.14 of its potential returns per unit of risk. Western Metal Materials is currently generating about 0.14 per unit of risk. If you would invest  513.00  in Industrial Securities Co on September 3, 2024 and sell it today you would earn a total of  136.00  from holding Industrial Securities Co or generate 26.51% return on investment over 90 days.

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

Industrial Securities Co  vs.  Western Metal Materials

Industrial Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Metal Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial Securities and Western Metal

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

The idea behind Industrial Securities Co and Western Metal Materials 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.