Correlation Between Repco Home and Zenith Steel

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

By analyzing existing cross correlation between Repco Home Finance and Zenith Steel Pipes, you can compare the effects of market volatilities on Repco Home and Zenith 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 Repco Home with a short position of Zenith Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Repco Home and Zenith Steel.

Diversification Opportunities for Repco Home and Zenith Steel

0.85

Correlation Coefficient

Repco Home  Zenith Steel

Very poor diversification

The 3 months correlation between Repco and Zenith is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Repco Home Finance and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes and Repco Home 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 Repco Home Finance are associated (or correlated) with Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of Repco Home i.e., Repco Home and Zenith Steel go up and down completely randomly.

Pair Corralation between Repco Home and Zenith Steel

Assuming the 90 days trading horizon Repco Home Finance is expected to generate 0.85 times more return on investment than Zenith Steel. However, Repco Home Finance is 1.17 times less risky than Zenith Steel. It trades about -0.04 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about -0.04 per unit of risk. If you would invest  52,215  in Repco Home Finance on September 3, 2024 and sell it today you would lose (2,915) from holding Repco Home Finance or give up 5.58% of portfolio value over 90 days.

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

Repco Home Finance  vs.  Zenith Steel Pipes

Repco Home Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Repco Home Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Repco Home is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Repco Home and Zenith Steel

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

The idea behind Repco Home Finance and Zenith Steel Pipes 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.