Correlation Between Red Hill and Vulcan Steel

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

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

Diversification Opportunities for Red Hill and Vulcan Steel

-0.67

Correlation Coefficient

Red Hill  Vulcan Steel

Excellent diversification

The 3 months correlation between Red and Vulcan is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Red Hill Iron and Vulcan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Steel and Red Hill 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 Red Hill Iron are associated (or correlated) with Vulcan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Steel has no effect on the direction of Red Hill i.e., Red Hill and Vulcan Steel go up and down completely randomly.

Pair Corralation between Red Hill and Vulcan Steel

Assuming the 90 days trading horizon Red Hill Iron is expected to generate 1.13 times more return on investment than Vulcan Steel. However, Red Hill is 1.13 times more volatile than Vulcan Steel. It trades about 0.03 of its potential returns per unit of risk. Vulcan Steel is currently generating about 0.0 per unit of risk. If you would invest  310.00  in Red Hill Iron on October 3, 2024 and sell it today you would earn a total of  101.00  from holding Red Hill Iron or generate 32.58% return on investment over 90 days.

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

Red Hill Iron  vs.  Vulcan Steel

Red Hill Iron

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Hill Iron are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Red Hill unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vulcan Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vulcan Steel 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 essential indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Red Hill and Vulcan Steel

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

The idea behind Red Hill Iron and Vulcan Steel 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.