Correlation Between Metropolitan Steel and Aisha Steel

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

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

Diversification Opportunities for Metropolitan Steel and Aisha Steel

0.76

Correlation Coefficient

Metropolitan Steel  Aisha Steel

Poor diversification

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

Pair Corralation between Metropolitan Steel and Aisha Steel

Assuming the 90 days trading horizon Metropolitan Steel Corp is expected to under-perform the Aisha Steel. But the stock apears to be less risky and, when comparing its historical volatility, Metropolitan Steel Corp is 1.37 times less risky than Aisha Steel. The stock trades about -0.07 of its potential returns per unit of risk. The Aisha Steel Mills is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,101  in Aisha Steel Mills on December 24, 2024 and sell it today you would lose (91.00) from holding Aisha Steel Mills or give up 8.27% of portfolio value over 90 days.

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

Metropolitan Steel Corp  vs.  Aisha Steel Mills

Metropolitan Steel Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metropolitan Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Aisha Steel Mills

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aisha Steel Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Aisha Steel is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Metropolitan Steel and Aisha Steel

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

The idea behind Metropolitan Steel Corp and Aisha Steel Mills 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.