Correlation Between International Steels and Dost Steels

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

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

Diversification Opportunities for International Steels and Dost Steels

0.23

Correlation Coefficient

International Steels  Dost Steels

Modest diversification

The 3 months correlation between International and Dost is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Dost Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dost Steels and International Steels 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 International Steels are associated (or correlated) with Dost Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dost Steels has no effect on the direction of International Steels i.e., International Steels and Dost Steels go up and down completely randomly.

Pair Corralation between International Steels and Dost Steels

Assuming the 90 days trading horizon International Steels is expected to generate 0.86 times more return on investment than Dost Steels. However, International Steels is 1.17 times less risky than Dost Steels. It trades about 0.15 of its potential returns per unit of risk. Dost Steels is currently generating about 0.12 per unit of risk. If you would invest  8,611  in International Steels on October 24, 2024 and sell it today you would earn a total of  630.00  from holding International Steels or generate 7.32% return on investment over 90 days.

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

International Steels  vs.  Dost Steels

International Steels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Dost Steels

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dost Steels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dost Steels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with International Steels and Dost Steels

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

The idea behind International Steels and Dost Steels 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.