Correlation Between Steel Authority and Chembond Chemicals

Can any of the company-specific risk be diversified away by investing in both Steel Authority and Chembond Chemicals 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 Chembond Chemicals 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 Chembond Chemicals, you can compare the effects of market volatilities on Steel Authority and Chembond Chemicals 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 Chembond Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Authority and Chembond Chemicals.

Diversification Opportunities for Steel Authority and Chembond Chemicals

0.7

Correlation Coefficient

Steel Authority  Chembond Chemicals

Poor diversification

The 3 months correlation between Steel and Chembond is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Chembond Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chembond Chemicals 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 Chembond Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chembond Chemicals has no effect on the direction of Steel Authority i.e., Steel Authority and Chembond Chemicals go up and down completely randomly.

Pair Corralation between Steel Authority and Chembond Chemicals

Assuming the 90 days trading horizon Steel Authority is expected to generate 2.1 times less return on investment than Chembond Chemicals. But when comparing it to its historical volatility, Steel Authority of is 1.01 times less risky than Chembond Chemicals. It trades about 0.15 of its potential returns per unit of risk. Chembond Chemicals is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  54,680  in Chembond Chemicals on September 22, 2024 and sell it today you would earn a total of  6,030  from holding Chembond Chemicals or generate 11.03% return on investment over 90 days.

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

Steel Authority of  vs.  Chembond Chemicals

Steel Authority

Risk-Adjusted Performance

0 of 100

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 weak 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.

Chembond Chemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chembond Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Chembond Chemicals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Steel Authority and Chembond Chemicals

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

The idea behind Steel Authority of and Chembond Chemicals 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.