Correlation Between Southern Steel and Lysaght Galvanized
Can any of the company-specific risk be diversified away by investing in both Southern Steel and Lysaght Galvanized 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 Southern Steel and Lysaght Galvanized into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Steel Bhd and Lysaght Galvanized Steel, you can compare the effects of market volatilities on Southern Steel and Lysaght Galvanized 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 Southern Steel with a short position of Lysaght Galvanized. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Steel and Lysaght Galvanized.
Diversification Opportunities for Southern Steel and Lysaght Galvanized
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Southern and Lysaght is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Southern Steel Bhd and Lysaght Galvanized Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lysaght Galvanized Steel and Southern 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 Southern Steel Bhd are associated (or correlated) with Lysaght Galvanized. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lysaght Galvanized Steel has no effect on the direction of Southern Steel i.e., Southern Steel and Lysaght Galvanized go up and down completely randomly.
Pair Corralation between Southern Steel and Lysaght Galvanized
Assuming the 90 days trading horizon Southern Steel is expected to generate 5.72 times less return on investment than Lysaght Galvanized. But when comparing it to its historical volatility, Southern Steel Bhd is 1.2 times less risky than Lysaght Galvanized. It trades about 0.01 of its potential returns per unit of risk. Lysaght Galvanized Steel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 183.00 in Lysaght Galvanized Steel on August 30, 2024 and sell it today you would earn a total of 159.00 from holding Lysaght Galvanized Steel or generate 86.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.11% |
| Values | Daily Returns |
Southern Steel Bhd vs. Lysaght Galvanized Steel
Performance |
| Timeline |
| Southern Steel Bhd |
| Lysaght Galvanized Steel |
Southern Steel and Lysaght Galvanized Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Steel and Lysaght Galvanized
The main advantage of trading using opposite Southern Steel and Lysaght Galvanized positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Steel position performs unexpectedly, Lysaght Galvanized 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 Lysaght Galvanized will offset losses from the drop in Lysaght Galvanized's long position.The idea behind Southern Steel Bhd and Lysaght Galvanized Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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