Correlation Between CSC Steel and Southern Steel
Can any of the company-specific risk be diversified away by investing in both CSC Steel and Southern 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 CSC Steel and Southern Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CSC Steel Holdings and Southern Steel Bhd, you can compare the effects of market volatilities on CSC Steel and Southern 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 CSC Steel with a short position of Southern Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSC Steel and Southern Steel.
Diversification Opportunities for CSC Steel and Southern Steel
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between CSC and Southern is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding CSC Steel Holdings and Southern Steel Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Steel Bhd and CSC 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 CSC Steel Holdings are associated (or correlated) with Southern Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Steel Bhd has no effect on the direction of CSC Steel i.e., CSC Steel and Southern Steel go up and down completely randomly.
Pair Corralation between CSC Steel and Southern Steel
Assuming the 90 days trading horizon CSC Steel is expected to generate 1.4 times less return on investment than Southern Steel. But when comparing it to its historical volatility, CSC Steel Holdings is 2.67 times less risky than Southern Steel. It trades about 0.02 of its potential returns per unit of risk. Southern Steel Bhd is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 59.00 in Southern Steel Bhd on August 28, 2024 and sell it today you would lose (4.00) from holding Southern Steel Bhd or give up 6.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CSC Steel Holdings vs. Southern Steel Bhd
Performance |
| Timeline |
| CSC Steel Holdings |
| Southern Steel Bhd |
CSC Steel and Southern Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CSC Steel and Southern Steel
The main advantage of trading using opposite CSC Steel and Southern Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSC Steel position performs unexpectedly, Southern 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 Southern Steel will offset losses from the drop in Southern Steel's long position.The idea behind CSC Steel Holdings and Southern Steel Bhd 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.Check out your portfolio center.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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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