Correlation Between Steel Authority and Zenith Steel

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

Diversification Opportunities for Steel Authority and Zenith Steel

0.38

Correlation Coefficient

Steel Authority  Zenith Steel

Weak diversification

The 3 months correlation between Steel and Zenith is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes 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 Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of Steel Authority i.e., Steel Authority and Zenith Steel go up and down completely randomly.

Pair Corralation between Steel Authority and Zenith Steel

Assuming the 90 days trading horizon Steel Authority of is expected to generate 0.53 times more return on investment than Zenith Steel. However, Steel Authority of is 1.87 times less risky than Zenith Steel. It trades about 0.25 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about 0.02 per unit of risk. If you would invest  10,502  in Steel Authority of on December 30, 2024 and sell it today you would earn a total of  1,016  from holding Steel Authority of or generate 9.67% return on investment over 90 days.

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

Steel Authority of  vs.  Zenith Steel Pipes

Steel Authority

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Authority of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Steel Authority is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Zenith Steel Pipes

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zenith Steel Pipes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Steel Authority and Zenith Steel

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

The idea behind Steel Authority of and Zenith Steel Pipes 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.