Correlation Between Steel Authority and IG Petrochemicals

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

Diversification Opportunities for Steel Authority and IG Petrochemicals

0.53

Correlation Coefficient

Steel Authority  IG Petrochemicals

Very weak diversification

The 3 months correlation between Steel and IGPL is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals 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 IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of Steel Authority i.e., Steel Authority and IG Petrochemicals go up and down completely randomly.

Pair Corralation between Steel Authority and IG Petrochemicals

Assuming the 90 days trading horizon Steel Authority is expected to generate 1.54 times less return on investment than IG Petrochemicals. In addition to that, Steel Authority is 1.2 times more volatile than IG Petrochemicals Limited. It trades about 0.02 of its total potential returns per unit of risk. IG Petrochemicals Limited is currently generating about 0.05 per unit of volatility. If you would invest  46,345  in IG Petrochemicals Limited on September 20, 2024 and sell it today you would earn a total of  10,680  from holding IG Petrochemicals Limited or generate 23.04% return on investment over 90 days.

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

Steel Authority of  vs.  IG Petrochemicals Limited

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Steel Authority and IG Petrochemicals

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

The idea behind Steel Authority of and IG Petrochemicals 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.