Correlation Between Stock Exchange and TMT Steel

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

By analyzing existing cross correlation between Stock Exchange Of and TMT Steel Public, you can compare the effects of market volatilities on Stock Exchange and TMT 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 Stock Exchange with a short position of TMT Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Exchange and TMT Steel.

Diversification Opportunities for Stock Exchange and TMT Steel

0.21

Correlation Coefficient

Stock Exchange  TMT Steel

Modest diversification

The 3 months correlation between Stock and TMT is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Stock Exchange Of and TMT Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Steel Public and Stock Exchange 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 Stock Exchange Of are associated (or correlated) with TMT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Steel Public has no effect on the direction of Stock Exchange i.e., Stock Exchange and TMT Steel go up and down completely randomly.

Pair Corralation between Stock Exchange and TMT Steel

Assuming the 90 days trading horizon Stock Exchange Of is expected to under-perform the TMT Steel. But the index apears to be less risky and, when comparing its historical volatility, Stock Exchange Of is 2.14 times less risky than TMT Steel. The index trades about -0.26 of its potential returns per unit of risk. The TMT Steel Public is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  314.00  in TMT Steel Public on December 29, 2024 and sell it today you would lose (4.00) from holding TMT Steel Public or give up 1.27% of portfolio value over 90 days.

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

Stock Exchange Of  vs.  TMT Steel Public

Pair Trading with Stock Exchange and TMT Steel

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

The idea behind Stock Exchange Of and TMT Steel Public 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.