Correlation Between X-FAB Silicon and PT Steel

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

By analyzing existing cross correlation between X FAB Silicon Foundries and PT Steel Pipe, you can compare the effects of market volatilities on X-FAB Silicon and PT 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 X-FAB Silicon with a short position of PT Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of X-FAB Silicon and PT Steel.

Diversification Opportunities for X-FAB Silicon and PT Steel

0.17

Correlation Coefficient

X-FAB Silicon  PT Steel

Average diversification

The 3 months correlation between X-FAB and S08 is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and PT Steel Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Steel Pipe and X-FAB Silicon 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 X FAB Silicon Foundries are associated (or correlated) with PT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Steel Pipe has no effect on the direction of X-FAB Silicon i.e., X-FAB Silicon and PT Steel go up and down completely randomly.

Pair Corralation between X-FAB Silicon and PT Steel

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the PT Steel. But the stock apears to be less risky and, when comparing its historical volatility, X FAB Silicon Foundries is 1.56 times less risky than PT Steel. The stock trades about -0.01 of its potential returns per unit of risk. The PT Steel Pipe is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1.10  in PT Steel Pipe on December 19, 2024 and sell it today you would earn a total of  0.05  from holding PT Steel Pipe or generate 4.55% return on investment over 90 days.

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

X FAB Silicon Foundries  vs.  PT Steel Pipe

X FAB Silicon

Risk-Adjusted Performance

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, X-FAB Silicon is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

PT Steel Pipe

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Steel Pipe are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with X-FAB Silicon and PT Steel

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

The idea behind X FAB Silicon Foundries and PT Steel Pipe 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.