Correlation Between International Steels and Matco Foods

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

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

Diversification Opportunities for International Steels and Matco Foods

-0.2

Correlation Coefficient

International Steels  Matco Foods

Good diversification

The 3 months correlation between International and Matco is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Matco Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matco Foods 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 Matco Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matco Foods has no effect on the direction of International Steels i.e., International Steels and Matco Foods go up and down completely randomly.

Pair Corralation between International Steels and Matco Foods

Assuming the 90 days trading horizon International Steels is expected to generate 0.61 times more return on investment than Matco Foods. However, International Steels is 1.64 times less risky than Matco Foods. It trades about -0.04 of its potential returns per unit of risk. Matco Foods is currently generating about -0.04 per unit of risk. If you would invest  8,595  in International Steels on December 25, 2024 and sell it today you would lose (574.00) from holding International Steels or give up 6.68% of portfolio value over 90 days.

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

International Steels  vs.  Matco Foods

International Steels

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Steels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, International Steels is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Matco Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matco Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with International Steels and Matco Foods

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

The idea behind International Steels and Matco Foods 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.