Correlation Between Steel Authority and Alkali Metals

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

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

Diversification Opportunities for Steel Authority and Alkali Metals

0.81

Correlation Coefficient

Steel Authority  Alkali Metals

Very poor diversification

The 3 months correlation between Steel and Alkali is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Alkali Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkali Metals Limited and Steel Authority 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 Steel Authority of are associated (or correlated) with Alkali Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkali Metals Limited has no effect on the direction of Steel Authority i.e., Steel Authority and Alkali Metals go up and down completely randomly.

Pair Corralation between Steel Authority and Alkali Metals

Assuming the 90 days trading horizon Steel Authority of is expected to generate 1.06 times more return on investment than Alkali Metals. However, Steel Authority is 1.06 times more volatile than Alkali Metals Limited. It trades about -0.05 of its potential returns per unit of risk. Alkali Metals Limited is currently generating about -0.15 per unit of risk. If you would invest  11,711  in Steel Authority of on November 29, 2024 and sell it today you would lose (1,094) from holding Steel Authority of or give up 9.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Steel Authority of  vs.  Alkali Metals Limited

Steel Authority

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steel Authority of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Alkali Metals Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Steel Authority and Alkali Metals

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

The idea behind Steel Authority of and Alkali Metals 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..