Correlation Between United Bank and Crescent Steel

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

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

Diversification Opportunities for United Bank and Crescent Steel

0.17

Correlation Coefficient

United Bank  Crescent Steel

Average diversification

The 3 months correlation between United and Crescent is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding United Bank and Crescent Steel Allied in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Steel Allied and United Bank 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 United Bank are associated (or correlated) with Crescent Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Steel Allied has no effect on the direction of United Bank i.e., United Bank and Crescent Steel go up and down completely randomly.

Pair Corralation between United Bank and Crescent Steel

Assuming the 90 days trading horizon United Bank is expected to generate 0.5 times more return on investment than Crescent Steel. However, United Bank is 1.98 times less risky than Crescent Steel. It trades about 0.1 of its potential returns per unit of risk. Crescent Steel Allied is currently generating about 0.02 per unit of risk. If you would invest  36,730  in United Bank on October 10, 2024 and sell it today you would earn a total of  1,567  from holding United Bank or generate 4.27% return on investment over 90 days.

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

United Bank  vs.  Crescent Steel Allied

United Bank

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, United Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Crescent Steel Allied

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Steel Allied are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Crescent Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Bank and Crescent Steel

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

The idea behind United Bank and Crescent Steel Allied 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.