Correlation Between CP ALL and MCS Steel

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

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

Diversification Opportunities for CP ALL and MCS Steel

0.52

Correlation Coefficient

CP ALL  MCS Steel

Very weak diversification

The 3 months correlation between CPALL and MCS is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding CP ALL Public and MCS Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCS Steel Public and CP ALL 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 CP ALL Public are associated (or correlated) with MCS Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCS Steel Public has no effect on the direction of CP ALL i.e., CP ALL and MCS Steel go up and down completely randomly.

Pair Corralation between CP ALL and MCS Steel

Assuming the 90 days trading horizon CP ALL is expected to generate 47.98 times less return on investment than MCS Steel. But when comparing it to its historical volatility, CP ALL Public is 50.31 times less risky than MCS Steel. It trades about 0.06 of its potential returns per unit of risk. MCS Steel Public is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  602.00  in MCS Steel Public on September 12, 2024 and sell it today you would earn a total of  88.00  from holding MCS Steel Public or generate 14.62% return on investment over 90 days.

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

CP ALL Public  vs.  MCS Steel Public

CP ALL Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CP ALL Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, CP ALL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

MCS Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CP ALL and MCS Steel

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

The idea behind CP ALL Public and MCS Steel Public 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.