Correlation Between City Steel and Prime Office

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

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

Diversification Opportunities for City Steel and Prime Office

0.16

Correlation Coefficient

City Steel  Prime Office

Average diversification

The 3 months correlation between City and Prime is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding City Steel Public and Prime Office Leasehold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Office Leasehold and City 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 City Steel Public are associated (or correlated) with Prime Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Office Leasehold has no effect on the direction of City Steel i.e., City Steel and Prime Office go up and down completely randomly.

Pair Corralation between City Steel and Prime Office

Assuming the 90 days trading horizon City Steel Public is expected to generate 112.96 times more return on investment than Prime Office. However, City Steel is 112.96 times more volatile than Prime Office Leasehold. It trades about 0.11 of its potential returns per unit of risk. Prime Office Leasehold is currently generating about 0.19 per unit of risk. If you would invest  202.00  in City Steel Public on September 2, 2024 and sell it today you would lose (16.00) from holding City Steel Public or give up 7.92% of portfolio value over 90 days.

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

City Steel Public  vs.  Prime Office Leasehold

City Steel Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Steel Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, City Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Prime Office Leasehold

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Office Leasehold are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. Despite quite weak forward-looking signals, Prime Office disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with City Steel and Prime Office

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

The idea behind City Steel Public and Prime Office Leasehold 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.