Correlation Between United Paper and TMT Steel

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

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

Diversification Opportunities for United Paper and TMT Steel

-0.07

Correlation Coefficient

United Paper  TMT Steel

Good diversification

The 3 months correlation between United and TMT is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding United Paper Public and TMT Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Steel Public and United Paper 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 Paper Public are associated (or correlated) with TMT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Steel Public has no effect on the direction of United Paper i.e., United Paper and TMT Steel go up and down completely randomly.

Pair Corralation between United Paper and TMT Steel

Assuming the 90 days trading horizon United Paper is expected to generate 1.33 times less return on investment than TMT Steel. But when comparing it to its historical volatility, United Paper Public is 2.65 times less risky than TMT Steel. It trades about 0.08 of its potential returns per unit of risk. TMT Steel Public is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  314.00  in TMT Steel Public on December 28, 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 Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

United Paper Public  vs.  TMT Steel Public

United Paper Public

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Paper Public are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, United Paper is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

TMT Steel Public

Risk-Adjusted Performance

Insignificant

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.

Pair Trading with United Paper and TMT Steel

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

The idea behind United Paper Public and TMT 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.