Correlation Between International Steels and Packages

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

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

Diversification Opportunities for International Steels and Packages

0.76

Correlation Coefficient

International Steels  Packages

Poor diversification

The 3 months correlation between International and Packages is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Packages in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Packages 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 Packages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Packages has no effect on the direction of International Steels i.e., International Steels and Packages go up and down completely randomly.

Pair Corralation between International Steels and Packages

Assuming the 90 days trading horizon International Steels is expected to generate 1.14 times more return on investment than Packages. However, International Steels is 1.14 times more volatile than Packages. It trades about 0.09 of its potential returns per unit of risk. Packages is currently generating about 0.04 per unit of risk. If you would invest  6,352  in International Steels on October 9, 2024 and sell it today you would earn a total of  3,479  from holding International Steels or generate 54.77% return on investment over 90 days.

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

International Steels  vs.  Packages

International Steels

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Packages

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Packages are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Packages sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Steels and Packages

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

The idea behind International Steels and Packages 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.