Correlation Between Steel Authority and Welspun Investments

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

Diversification Opportunities for Steel Authority and Welspun Investments

0.68

Correlation Coefficient

Steel Authority  Welspun Investments

Poor diversification

The 3 months correlation between Steel and Welspun is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Welspun Investments and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welspun Investments and 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 Welspun Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welspun Investments and has no effect on the direction of Steel Authority i.e., Steel Authority and Welspun Investments go up and down completely randomly.

Pair Corralation between Steel Authority and Welspun Investments

Assuming the 90 days trading horizon Steel Authority of is expected to generate 0.7 times more return on investment than Welspun Investments. However, Steel Authority of is 1.43 times less risky than Welspun Investments. It trades about 0.02 of its potential returns per unit of risk. Welspun Investments and is currently generating about -0.11 per unit of risk. If you would invest  11,603  in Steel Authority of on August 31, 2024 and sell it today you would earn a total of  25.00  from holding Steel Authority of or generate 0.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Steel Authority of  vs.  Welspun Investments and

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Welspun Investments and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Welspun Investments and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Steel Authority and Welspun Investments

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

The idea behind Steel Authority of and Welspun Investments and 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .