Correlation Between Press Metal and Southern Steel
Can any of the company-specific risk be diversified away by investing in both Press Metal 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 Press Metal and Southern Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Press Metal Bhd and Southern Steel Bhd, you can compare the effects of market volatilities on Press Metal 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 Press Metal with a short position of Southern Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Press Metal and Southern Steel.
Diversification Opportunities for Press Metal and Southern Steel
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Press and Southern is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Press Metal Bhd 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 Press Metal 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 Press Metal Bhd 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 Press Metal i.e., Press Metal and Southern Steel go up and down completely randomly.
Pair Corralation between Press Metal and Southern Steel
Assuming the 90 days trading horizon Press Metal Bhd is expected to under-perform the Southern Steel. But the stock apears to be less risky and, when comparing its historical volatility, Press Metal Bhd is 1.59 times less risky than Southern Steel. The stock trades about -0.09 of its potential returns per unit of risk. The Southern Steel Bhd is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 52.00 in Southern Steel Bhd on August 28, 2024 and sell it today you would earn a total of 3.00 from holding Southern Steel Bhd or generate 5.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Press Metal Bhd vs. Southern Steel Bhd
Performance |
| Timeline |
| Press Metal Bhd |
| Southern Steel Bhd |
Press Metal and Southern Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Press Metal and Southern Steel
The main advantage of trading using opposite Press Metal and Southern Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Press Metal 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 Press Metal Bhd 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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