Correlation Between National Refinery and Crescent Steel

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

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

Diversification Opportunities for National Refinery and Crescent Steel

0.34

Correlation Coefficient

National Refinery  Crescent Steel

Weak diversification

The 3 months correlation between National and Crescent is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding National Refinery 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 National Refinery 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 National Refinery 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 National Refinery i.e., National Refinery and Crescent Steel go up and down completely randomly.

Pair Corralation between National Refinery and Crescent Steel

Assuming the 90 days trading horizon National Refinery is expected to generate 1.3 times less return on investment than Crescent Steel. But when comparing it to its historical volatility, National Refinery is 1.74 times less risky than Crescent Steel. It trades about 0.18 of its potential returns per unit of risk. Crescent Steel Allied is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  7,132  in Crescent Steel Allied on September 14, 2024 and sell it today you would earn a total of  3,013  from holding Crescent Steel Allied or generate 42.25% return on investment over 90 days.

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

National Refinery  vs.  Crescent Steel Allied

National Refinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Crescent Steel Allied

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Steel Allied are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Crescent Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Refinery and Crescent Steel

The main advantage of trading using opposite National Refinery and Crescent Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Refinery 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 National Refinery 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.