Correlation Between Regional Container and City Steel

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

By analyzing existing cross correlation between Regional Container Lines and City Steel Public, you can compare the effects of market volatilities on Regional Container and City 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 Regional Container with a short position of City Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Container and City Steel.

Diversification Opportunities for Regional Container and City Steel

-0.39

Correlation Coefficient

Regional Container  City Steel

Very good diversification

The 3 months correlation between Regional and City is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Regional Container Lines and City Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Steel Public and Regional Container 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 Regional Container Lines are associated (or correlated) with City Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Steel Public has no effect on the direction of Regional Container i.e., Regional Container and City Steel go up and down completely randomly.

Pair Corralation between Regional Container and City Steel

Assuming the 90 days trading horizon Regional Container Lines is expected to under-perform the City Steel. But the stock apears to be less risky and, when comparing its historical volatility, Regional Container Lines is 1.1 times less risky than City Steel. The stock trades about -0.17 of its potential returns per unit of risk. The City Steel Public is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  189.00  in City Steel Public on October 9, 2024 and sell it today you would lose (1.00) from holding City Steel Public or give up 0.53% of portfolio value over 90 days.

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

Regional Container Lines  vs.  City Steel Public

Regional Container Lines

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Container Lines are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Regional Container disclosed solid returns over the last few months and may actually be approaching a breakup point.

City Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, City Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Regional Container and City Steel

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

The idea behind Regional Container Lines and City Steel Public 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.