Correlation Between Beco Steel and National Refinery

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

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

Diversification Opportunities for Beco Steel and National Refinery

0.81

Correlation Coefficient

Beco Steel  National Refinery

Very poor diversification

The 3 months correlation between Beco and National is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Beco Steel and National Refinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Refinery and Beco 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 Beco Steel are associated (or correlated) with National Refinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Refinery has no effect on the direction of Beco Steel i.e., Beco Steel and National Refinery go up and down completely randomly.

Pair Corralation between Beco Steel and National Refinery

Assuming the 90 days trading horizon Beco Steel is expected to generate 1.13 times more return on investment than National Refinery. However, Beco Steel is 1.13 times more volatile than National Refinery. It trades about 0.01 of its potential returns per unit of risk. National Refinery is currently generating about -0.01 per unit of risk. If you would invest  829.00  in Beco Steel on October 3, 2024 and sell it today you would lose (49.00) from holding Beco Steel or give up 5.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.85%
Values	Daily Returns

Beco Steel  vs.  National Refinery

Beco Steel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beco Steel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beco Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

National Refinery

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beco Steel and National Refinery

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

The idea behind Beco Steel and National Refinery 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.