Correlation Between Investment Trust and SAL Steel

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

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

Diversification Opportunities for Investment Trust and SAL Steel

0.41

Correlation Coefficient

Investment Trust  SAL Steel

Very weak diversification

The 3 months correlation between Investment and SAL is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding The Investment Trust and SAL Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAL Steel Limited and Investment Trust 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 The Investment Trust are associated (or correlated) with SAL Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAL Steel Limited has no effect on the direction of Investment Trust i.e., Investment Trust and SAL Steel go up and down completely randomly.

Pair Corralation between Investment Trust and SAL Steel

Assuming the 90 days trading horizon The Investment Trust is expected to generate 0.66 times more return on investment than SAL Steel. However, The Investment Trust is 1.52 times less risky than SAL Steel. It trades about -0.37 of its potential returns per unit of risk. SAL Steel Limited is currently generating about -0.39 per unit of risk. If you would invest  21,133  in The Investment Trust on October 12, 2024 and sell it today you would lose (2,244) from holding The Investment Trust or give up 10.62% of portfolio value over 90 days.

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

The Investment Trust  vs.  SAL Steel Limited

Investment Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Investment Trust and SAL Steel

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

The idea behind The Investment Trust and SAL Steel Limited 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 CEOs Directory module to screen CEOs from public companies around the world.