Correlation Between Electrosteel Castings and Rama Steel

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

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

Diversification Opportunities for Electrosteel Castings and Rama Steel

0.84

Correlation Coefficient

Electrosteel Castings  Rama Steel

Very poor diversification

The 3 months correlation between Electrosteel and Rama is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Electrosteel Castings Limited and Rama Steel Tubes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rama Steel Tubes and Electrosteel Castings 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 Electrosteel Castings Limited are associated (or correlated) with Rama Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rama Steel Tubes has no effect on the direction of Electrosteel Castings i.e., Electrosteel Castings and Rama Steel go up and down completely randomly.

Pair Corralation between Electrosteel Castings and Rama Steel

Assuming the 90 days trading horizon Electrosteel Castings Limited is expected to under-perform the Rama Steel. But the stock apears to be less risky and, when comparing its historical volatility, Electrosteel Castings Limited is 1.3 times less risky than Rama Steel. The stock trades about -0.06 of its potential returns per unit of risk. The Rama Steel Tubes is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,140  in Rama Steel Tubes on September 29, 2024 and sell it today you would earn a total of  77.00  from holding Rama Steel Tubes or generate 6.75% return on investment over 90 days.

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

Electrosteel Castings Limited  vs.  Rama Steel Tubes

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Rama Steel Tubes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rama Steel Tubes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Electrosteel Castings and Rama Steel

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

The idea behind Electrosteel Castings Limited and Rama Steel Tubes 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.