Correlation Between Servotech Power and Steel Authority

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

By analyzing existing cross correlation between Servotech Power Systems and Steel Authority of, you can compare the effects of market volatilities on Servotech Power and Steel Authority 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 Servotech Power with a short position of Steel Authority. Check out your portfolio center. Please also check ongoing floating volatility patterns of Servotech Power and Steel Authority.

Diversification Opportunities for Servotech Power and Steel Authority

0.37

Correlation Coefficient

Servotech Power  Steel Authority

Weak diversification

The 3 months correlation between Servotech and Steel is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Servotech Power Systems and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority and Servotech Power 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 Servotech Power Systems are associated (or correlated) with Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of Servotech Power i.e., Servotech Power and Steel Authority go up and down completely randomly.

Pair Corralation between Servotech Power and Steel Authority

Assuming the 90 days trading horizon Servotech Power Systems is expected to under-perform the Steel Authority. In addition to that, Servotech Power is 1.09 times more volatile than Steel Authority of. It trades about -0.11 of its total potential returns per unit of risk. Steel Authority of is currently generating about 0.24 per unit of volatility. If you would invest  11,145  in Steel Authority of on September 20, 2024 and sell it today you would earn a total of  836.00  from holding Steel Authority of or generate 7.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Servotech Power Systems  vs.  Steel Authority of

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Servotech Power is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Servotech Power and Steel Authority

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

The idea behind Servotech Power Systems and Steel Authority of 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.