Correlation Between SAL Steel and STEEL EXCHANGE

Can any of the company-specific risk be diversified away by investing in both SAL Steel and STEEL EXCHANGE 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 SAL Steel and STEEL EXCHANGE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SAL Steel Limited and STEEL EXCHANGE INDIA, you can compare the effects of market volatilities on SAL Steel and STEEL EXCHANGE 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 SAL Steel with a short position of STEEL EXCHANGE. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAL Steel and STEEL EXCHANGE.

Diversification Opportunities for SAL Steel and STEEL EXCHANGE

0.81

Correlation Coefficient

SAL Steel  STEEL EXCHANGE

Very poor diversification

The 3 months correlation between SAL and STEEL is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SAL Steel Limited and STEEL EXCHANGE INDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL EXCHANGE INDIA and SAL Steel 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 SAL Steel Limited are associated (or correlated) with STEEL EXCHANGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEEL EXCHANGE INDIA has no effect on the direction of SAL Steel i.e., SAL Steel and STEEL EXCHANGE go up and down completely randomly.

Pair Corralation between SAL Steel and STEEL EXCHANGE

Assuming the 90 days trading horizon SAL Steel Limited is expected to under-perform the STEEL EXCHANGE. In addition to that, SAL Steel is 1.38 times more volatile than STEEL EXCHANGE INDIA. It trades about -0.06 of its total potential returns per unit of risk. STEEL EXCHANGE INDIA is currently generating about -0.02 per unit of volatility. If you would invest  1,045  in STEEL EXCHANGE INDIA on October 27, 2024 and sell it today you would lose (20.00) from holding STEEL EXCHANGE INDIA or give up 1.91% of portfolio value over 90 days.

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

SAL Steel Limited  vs.  STEEL EXCHANGE INDIA

SAL Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SAL Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

STEEL EXCHANGE INDIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STEEL EXCHANGE INDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, STEEL EXCHANGE is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SAL Steel and STEEL EXCHANGE

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

The idea behind SAL Steel Limited and STEEL EXCHANGE INDIA 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.