Correlation Between MSP Steel and Fertilizers

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

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

Diversification Opportunities for MSP Steel and Fertilizers

0.35

Correlation Coefficient

MSP Steel  Fertilizers

Weak diversification

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

Pair Corralation between MSP Steel and Fertilizers

Assuming the 90 days trading horizon MSP Steel Power is expected to under-perform the Fertilizers. But the stock apears to be less risky and, when comparing its historical volatility, MSP Steel Power is 1.2 times less risky than Fertilizers. The stock trades about -0.33 of its potential returns per unit of risk. The Fertilizers and Chemicals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  92,845  in Fertilizers and Chemicals on October 23, 2024 and sell it today you would earn a total of  1,865  from holding Fertilizers and Chemicals or generate 2.01% return on investment over 90 days.

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

MSP Steel Power  vs.  Fertilizers and Chemicals

MSP Steel Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MSP Steel Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Fertilizers and Chemicals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fertilizers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSP Steel and Fertilizers

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

The idea behind MSP Steel Power and Fertilizers and Chemicals 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.