Correlation Between Steel Authority and SAL Steel

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

Diversification Opportunities for Steel Authority and SAL Steel

0.43

Correlation Coefficient

Steel Authority  SAL Steel

Very weak diversification

The 3 months correlation between Steel and SAL is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and SAL Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAL Steel Limited 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 SAL Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAL Steel Limited has no effect on the direction of Steel Authority i.e., Steel Authority and SAL Steel go up and down completely randomly.

Pair Corralation between Steel Authority and SAL Steel

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the SAL Steel. But the stock apears to be less risky and, when comparing its historical volatility, Steel Authority of is 1.63 times less risky than SAL Steel. The stock trades about -0.04 of its potential returns per unit of risk. The SAL Steel Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,326  in SAL Steel Limited on September 5, 2024 and sell it today you would earn a total of  208.00  from holding SAL Steel Limited or generate 8.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Steel Authority of  vs.  SAL Steel 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

SAL Steel Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SAL Steel Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, SAL Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Steel Authority and SAL Steel

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

The idea behind Steel Authority of and SAL Steel 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.