Correlation Between Federal Bank and SAL Steel

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

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

Diversification Opportunities for Federal Bank and SAL Steel

-0.27

Correlation Coefficient

Federal Bank  SAL Steel

Very good diversification

The 3 months correlation between Federal and SAL is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding The Federal Bank and SAL Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAL Steel Limited and Federal Bank 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 The Federal Bank are associated (or correlated) with SAL Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAL Steel Limited has no effect on the direction of Federal Bank i.e., Federal Bank and SAL Steel go up and down completely randomly.

Pair Corralation between Federal Bank and SAL Steel

Assuming the 90 days trading horizon The Federal Bank is expected to generate 0.75 times more return on investment than SAL Steel. However, The Federal Bank is 1.34 times less risky than SAL Steel. It trades about 0.11 of its potential returns per unit of risk. SAL Steel Limited is currently generating about -0.07 per unit of risk. If you would invest  18,420  in The Federal Bank on October 5, 2024 and sell it today you would earn a total of  2,194  from holding The Federal Bank or generate 11.91% return on investment over 90 days.

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

The Federal Bank  vs.  SAL Steel Limited

Federal Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, Federal Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

SAL Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SAL Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Federal Bank and SAL Steel

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

The idea behind The Federal Bank and SAL Steel Limited 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.