Correlation Between United States and Masco

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

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

Diversification Opportunities for United States and Masco

0.24

Correlation Coefficient

United States  Masco

Modest diversification

The 3 months correlation between United and Masco is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco and United States 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 States Steel are associated (or correlated) with Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of United States i.e., United States and Masco go up and down completely randomly.

Pair Corralation between United States and Masco

Given the investment horizon of 90 days United States is expected to generate 1.25 times less return on investment than Masco. But when comparing it to its historical volatility, United States Steel is 1.52 times less risky than Masco. It trades about 0.16 of its potential returns per unit of risk. Masco is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  114,362  in Masco on December 21, 2024 and sell it today you would earn a total of  41,548  from holding Masco or generate 36.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

United States Steel  vs.  Masco

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

Masco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Masco showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Masco

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

The idea behind United States Steel and Masco 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.