Correlation Between Steel Authority and Repco Home

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

Diversification Opportunities for Steel Authority and Repco Home

0.65

Correlation Coefficient

Steel Authority  Repco Home

Poor diversification

The 3 months correlation between Steel and Repco is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Repco Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Repco Home Finance 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 Repco Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Repco Home Finance has no effect on the direction of Steel Authority i.e., Steel Authority and Repco Home go up and down completely randomly.

Pair Corralation between Steel Authority and Repco Home

Assuming the 90 days trading horizon Steel Authority of is expected to generate 0.91 times more return on investment than Repco Home. However, Steel Authority of is 1.1 times less risky than Repco Home. It trades about -0.03 of its potential returns per unit of risk. Repco Home Finance is currently generating about -0.12 per unit of risk. If you would invest  11,467  in Steel Authority of on October 26, 2024 and sell it today you would lose (567.00) from holding Steel Authority of or give up 4.94% of portfolio value over 90 days.

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

Steel Authority of  vs.  Repco Home Finance

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.

Repco Home Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Repco Home Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Steel Authority and Repco Home

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

The idea behind Steel Authority of and Repco Home Finance 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.