Correlation Between TMT Steel and MCS Steel

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

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

Diversification Opportunities for TMT Steel and MCS Steel

-0.18

Correlation Coefficient

TMT Steel  MCS Steel

Good diversification

The 3 months correlation between TMT and MCS is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding TMT Steel Public and MCS Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCS Steel Public and TMT 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 TMT Steel Public are associated (or correlated) with MCS Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCS Steel Public has no effect on the direction of TMT Steel i.e., TMT Steel and MCS Steel go up and down completely randomly.

Pair Corralation between TMT Steel and MCS Steel

Assuming the 90 days trading horizon TMT Steel is expected to generate 1.1 times less return on investment than MCS Steel. In addition to that, TMT Steel is 1.24 times more volatile than MCS Steel Public. It trades about 0.07 of its total potential returns per unit of risk. MCS Steel Public is currently generating about 0.1 per unit of volatility. If you would invest  660.00  in MCS Steel Public on December 27, 2024 and sell it today you would earn a total of  65.00  from holding MCS Steel Public or generate 9.85% return on investment over 90 days.

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

TMT Steel Public  vs.  MCS Steel Public

TMT Steel Public

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TMT Steel Public are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, TMT Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MCS Steel Public

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MCS Steel Public are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, MCS Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with TMT Steel and MCS Steel

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

The idea behind TMT Steel Public and MCS 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.