Correlation Between Steel Authority and Ramco Cements

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

Diversification Opportunities for Steel Authority and Ramco Cements

0.4

Correlation Coefficient

Steel Authority  Ramco Cements

Very weak diversification

The 3 months correlation between Steel and Ramco is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and The Ramco Cements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ramco Cements 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 Ramco Cements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ramco Cements has no effect on the direction of Steel Authority i.e., Steel Authority and Ramco Cements go up and down completely randomly.

Pair Corralation between Steel Authority and Ramco Cements

Assuming the 90 days trading horizon Steel Authority of is expected to generate 1.73 times more return on investment than Ramco Cements. However, Steel Authority is 1.73 times more volatile than The Ramco Cements. It trades about -0.2 of its potential returns per unit of risk. The Ramco Cements is currently generating about -0.43 per unit of risk. If you would invest  11,906  in Steel Authority of on October 25, 2024 and sell it today you would lose (1,196) from holding Steel Authority of or give up 10.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Steel Authority of  vs.  The Ramco Cements

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

Ramco Cements

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Ramco Cements are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ramco Cements is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Steel Authority and Ramco Cements

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

The idea behind Steel Authority of and The Ramco Cements 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..