Correlation Between EGX 33 and Misr National

Can any of the company-specific risk be diversified away by investing in both EGX 33 and Misr National 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 EGX 33 and Misr National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EGX 33 Shariah and Misr National Steel, you can compare the effects of market volatilities on EGX 33 and Misr National 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 EGX 33 with a short position of Misr National. Check out your portfolio center. Please also check ongoing floating volatility patterns of EGX 33 and Misr National.

Diversification Opportunities for EGX 33 and Misr National

0.66

Correlation Coefficient

EGX 33  Misr National

Poor diversification

The 3 months correlation between EGX and Misr is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding EGX 33 Shariah and Misr National Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Misr National Steel and EGX 33 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 EGX 33 Shariah are associated (or correlated) with Misr National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Misr National Steel has no effect on the direction of EGX 33 i.e., EGX 33 and Misr National go up and down completely randomly.

Pair Corralation between EGX 33 and Misr National

Assuming the 90 days trading horizon EGX 33 is expected to generate 1.83 times less return on investment than Misr National. But when comparing it to its historical volatility, EGX 33 Shariah is 2.3 times less risky than Misr National. It trades about 0.16 of its potential returns per unit of risk. Misr National Steel is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  460.00  in Misr National Steel on September 16, 2024 and sell it today you would earn a total of  84.00  from holding Misr National Steel or generate 18.26% return on investment over 90 days.

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

EGX 33 Shariah  vs.  Misr National Steel

Pair Trading with EGX 33 and Misr National

The main advantage of trading using opposite EGX 33 and Misr National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EGX 33 position performs unexpectedly, Misr National 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 Misr National will offset losses from the drop in Misr National's long position.

The idea behind EGX 33 Shariah and Misr National Steel 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.