Correlation Between MCS Steel and TRV Rubber

Can any of the company-specific risk be diversified away by investing in both MCS Steel and TRV Rubber 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 TRV Rubber 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 TRV Rubber Products, you can compare the effects of market volatilities on MCS Steel and TRV Rubber 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 TRV Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of MCS Steel and TRV Rubber.

Diversification Opportunities for MCS Steel and TRV Rubber

-0.24

Correlation Coefficient

MCS Steel  TRV Rubber

Very good diversification

The 3 months correlation between MCS and TRV is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding MCS Steel Public and TRV Rubber Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRV Rubber Products 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 TRV Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRV Rubber Products has no effect on the direction of MCS Steel i.e., MCS Steel and TRV Rubber go up and down completely randomly.

Pair Corralation between MCS Steel and TRV Rubber

Assuming the 90 days trading horizon MCS Steel Public is expected to under-perform the TRV Rubber. But the stock apears to be less risky and, when comparing its historical volatility, MCS Steel Public is 3.74 times less risky than TRV Rubber. The stock trades about -0.09 of its potential returns per unit of risk. The TRV Rubber Products is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  202.00  in TRV Rubber Products on September 13, 2024 and sell it today you would earn a total of  46.00  from holding TRV Rubber Products or generate 22.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

MCS Steel Public  vs.  TRV Rubber Products

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

TRV Rubber Products

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TRV Rubber Products are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, TRV Rubber disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MCS Steel and TRV Rubber

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

The idea behind MCS Steel Public and TRV Rubber Products 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..