Correlation Between MSP Steel and Indian Railway

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

Diversification Opportunities for MSP Steel and Indian Railway

0.53

Correlation Coefficient

MSP Steel  Indian Railway

Very weak diversification

The 3 months correlation between MSP and Indian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding MSP Steel Power and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance 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 Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of MSP Steel i.e., MSP Steel and Indian Railway go up and down completely randomly.

Pair Corralation between MSP Steel and Indian Railway

Assuming the 90 days trading horizon MSP Steel Power is expected to generate 0.79 times more return on investment than Indian Railway. However, MSP Steel Power is 1.26 times less risky than Indian Railway. It trades about 0.18 of its potential returns per unit of risk. Indian Railway Finance is currently generating about 0.03 per unit of risk. If you would invest  4,253  in MSP Steel Power on September 24, 2024 and sell it today you would earn a total of  290.00  from holding MSP Steel Power or generate 6.82% return on investment over 90 days.

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

MSP Steel Power  vs.  Indian Railway Finance

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Indian Railway Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MSP Steel and Indian Railway

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

The idea behind MSP Steel Power and Indian Railway Finance 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.