Correlation Between Southern Steel and Leader Steel
Can any of the company-specific risk be diversified away by investing in both Southern Steel and Leader 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 Southern Steel and Leader Steel 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 Leader Steel Holdings, you can compare the effects of market volatilities on Southern Steel and Leader 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 Southern Steel with a short position of Leader Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Steel and Leader Steel.
Diversification Opportunities for Southern Steel and Leader Steel
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Southern and Leader is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Southern Steel Bhd and Leader Steel Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Steel Holdings 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 Leader Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leader Steel Holdings has no effect on the direction of Southern Steel i.e., Southern Steel and Leader Steel go up and down completely randomly.
Pair Corralation between Southern Steel and Leader Steel
Assuming the 90 days trading horizon Southern Steel Bhd is expected to generate 1.32 times more return on investment than Leader Steel. However, Southern Steel is 1.32 times more volatile than Leader Steel Holdings. It trades about -0.01 of its potential returns per unit of risk. Leader Steel Holdings is currently generating about -0.04 per unit of risk. If you would invest 60.00 in Southern Steel Bhd on August 30, 2024 and sell it today you would lose (5.00) from holding Southern Steel Bhd or give up 8.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Steel Bhd vs. Leader Steel Holdings
Performance |
| Timeline |
| Southern Steel Bhd |
| Leader Steel Holdings |
Southern Steel and Leader Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Steel and Leader Steel
The main advantage of trading using opposite Southern Steel and Leader Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Steel position performs unexpectedly, Leader 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 Leader Steel will offset losses from the drop in Leader Steel's long position.The idea behind Southern Steel Bhd and Leader Steel Holdings 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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