Correlation Between MCS Steel and TMT Steel

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

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

Diversification Opportunities for MCS Steel and TMT Steel

0.81

Correlation Coefficient

MCS Steel  TMT Steel

Very poor diversification

The 3 months correlation between MCS and TMT is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding MCS Steel Public and TMT Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Steel Public and MCS Steel 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 MCS Steel Public are associated (or correlated) with TMT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Steel Public has no effect on the direction of MCS Steel i.e., MCS Steel and TMT Steel go up and down completely randomly.

Pair Corralation between MCS Steel and TMT Steel

Assuming the 90 days trading horizon MCS Steel Public is expected to generate 1.0 times more return on investment than TMT Steel. However, MCS Steel Public is 1.0 times less risky than TMT Steel. It trades about 0.06 of its potential returns per unit of risk. TMT Steel Public is currently generating about 0.05 per unit of risk. If you would invest  607.00  in MCS Steel Public on September 4, 2024 and sell it today you would earn a total of  108.00  from holding MCS Steel Public or generate 17.79% return on investment over 90 days.

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

MCS Steel Public  vs.  TMT Steel Public

MCS Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MCS Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, MCS Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

TMT Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMT Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with MCS Steel and TMT Steel

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

The idea behind MCS Steel Public and TMT Steel Public 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..