Correlation Between Steel Authority and Fertilizers

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

Diversification Opportunities for Steel Authority and Fertilizers

0.69

Correlation Coefficient

Steel Authority  Fertilizers

Poor diversification

The 3 months correlation between Steel and Fertilizers is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Fertilizers and Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizers and 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 Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizers and Chemicals has no effect on the direction of Steel Authority i.e., Steel Authority and Fertilizers go up and down completely randomly.

Pair Corralation between Steel Authority and Fertilizers

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Fertilizers. But the stock apears to be less risky and, when comparing its historical volatility, Steel Authority of is 1.33 times less risky than Fertilizers. The stock trades about -0.04 of its potential returns per unit of risk. The Fertilizers and Chemicals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  100,700  in Fertilizers and Chemicals on September 5, 2024 and sell it today you would earn a total of  565.00  from holding Fertilizers and Chemicals or generate 0.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Steel Authority of  vs.  Fertilizers and 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 comparatively stable basic indicators, Steel Authority is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Fertilizers and Chemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fertilizers 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 Steel Authority and Fertilizers

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

The idea behind Steel Authority of and Fertilizers and 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 Commodity Directory module to find actively traded commodities issued by global exchanges.