Correlation Between Matco Foods and Crescent Steel

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

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

Diversification Opportunities for Matco Foods and Crescent Steel

0.35

Correlation Coefficient

Matco Foods  Crescent Steel

Weak diversification

The 3 months correlation between Matco and Crescent is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Matco Foods and Crescent Steel Allied in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Steel Allied and Matco Foods 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 Matco Foods are associated (or correlated) with Crescent Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Steel Allied has no effect on the direction of Matco Foods i.e., Matco Foods and Crescent Steel go up and down completely randomly.

Pair Corralation between Matco Foods and Crescent Steel

Assuming the 90 days trading horizon Matco Foods is expected to under-perform the Crescent Steel. In addition to that, Matco Foods is 1.11 times more volatile than Crescent Steel Allied. It trades about -0.01 of its total potential returns per unit of risk. Crescent Steel Allied is currently generating about 0.02 per unit of volatility. If you would invest  10,569  in Crescent Steel Allied on December 23, 2024 and sell it today you would earn a total of  50.00  from holding Crescent Steel Allied or generate 0.47% return on investment over 90 days.

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

Matco Foods  vs.  Crescent Steel Allied

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 relatively invariable basic indicators, Matco Foods is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Crescent Steel Allied

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Steel Allied are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Crescent Steel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matco Foods and Crescent Steel

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

The idea behind Matco Foods and Crescent Steel Allied 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.