Correlation Between Matco Foods and International Steels

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

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

Diversification Opportunities for Matco Foods and International Steels

0.89

Correlation Coefficient

Matco Foods  International Steels

Very poor diversification

The 3 months correlation between Matco and International is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Matco Foods and International Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Steels 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 International Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Steels has no effect on the direction of Matco Foods i.e., Matco Foods and International Steels go up and down completely randomly.

Pair Corralation between Matco Foods and International Steels

Assuming the 90 days trading horizon Matco Foods is expected to generate 6.29 times less return on investment than International Steels. In addition to that, Matco Foods is 1.61 times more volatile than International Steels. It trades about 0.01 of its total potential returns per unit of risk. International Steels is currently generating about 0.15 per unit of volatility. If you would invest  8,611  in International Steels on October 24, 2024 and sell it today you would earn a total of  630.00  from holding International Steels or generate 7.32% return on investment over 90 days.

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

Matco Foods  vs.  International Steels

Matco Foods

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Matco Foods reported solid returns over the last few months and may actually be approaching a breakup point.

International Steels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matco Foods and International Steels

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

The idea behind Matco Foods and International Steels 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.