Correlation Between TMT Steel and TRC Construction

Can any of the company-specific risk be diversified away by investing in both TMT Steel and TRC Construction 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 TRC Construction 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 TRC Construction Public, you can compare the effects of market volatilities on TMT Steel and TRC Construction 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 TRC Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMT Steel and TRC Construction.

Diversification Opportunities for TMT Steel and TRC Construction

0.21

Correlation Coefficient

TMT Steel  TRC Construction

Modest diversification

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

Pair Corralation between TMT Steel and TRC Construction

Assuming the 90 days trading horizon TMT Steel Public is expected to generate 0.28 times more return on investment than TRC Construction. However, TMT Steel Public is 3.53 times less risky than TRC Construction. It trades about 0.04 of its potential returns per unit of risk. TRC Construction Public is currently generating about -0.08 per unit of risk. If you would invest  314.00  in TMT Steel Public on December 27, 2024 and sell it today you would earn a total of  12.00  from holding TMT Steel Public or generate 3.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

TMT Steel Public  vs.  TRC Construction 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 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, TMT Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

TRC Construction Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRC Construction Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with TMT Steel and TRC Construction

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

The idea behind TMT Steel Public and TRC Construction 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.