Correlation Between Prakash Steelage and Electrosteel Castings

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

By analyzing existing cross correlation between Prakash Steelage Limited and Electrosteel Castings Limited, you can compare the effects of market volatilities on Prakash Steelage and Electrosteel Castings 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 Prakash Steelage with a short position of Electrosteel Castings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prakash Steelage and Electrosteel Castings.

Diversification Opportunities for Prakash Steelage and Electrosteel Castings

0.65

Correlation Coefficient

Prakash Steelage  Electrosteel Castings

Poor diversification

The 3 months correlation between Prakash and Electrosteel is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Prakash Steelage Limited and Electrosteel Castings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrosteel Castings and Prakash Steelage 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 Prakash Steelage Limited are associated (or correlated) with Electrosteel Castings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrosteel Castings has no effect on the direction of Prakash Steelage i.e., Prakash Steelage and Electrosteel Castings go up and down completely randomly.

Pair Corralation between Prakash Steelage and Electrosteel Castings

Assuming the 90 days trading horizon Prakash Steelage is expected to generate 14.1 times less return on investment than Electrosteel Castings. But when comparing it to its historical volatility, Prakash Steelage Limited is 1.18 times less risky than Electrosteel Castings. It trades about 0.0 of its potential returns per unit of risk. Electrosteel Castings Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  11,363  in Electrosteel Castings Limited on September 20, 2024 and sell it today you would earn a total of  3,778  from holding Electrosteel Castings Limited or generate 33.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.18%
Values	Daily Returns

Prakash Steelage Limited  vs.  Electrosteel Castings Limited

Prakash Steelage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prakash Steelage Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Prakash Steelage is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Prakash Steelage and Electrosteel Castings

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

The idea behind Prakash Steelage Limited and Electrosteel Castings Limited 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..