Correlation Between City Steel and TMT Steel
Can any of the company-specific risk be diversified away by investing in both City Steel and TMT 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 City Steel and TMT Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between City Steel Public and TMT Steel Public, you can compare the effects of market volatilities on City Steel and TMT 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 City Steel with a short position of TMT Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Steel and TMT Steel.
Diversification Opportunities for City Steel and TMT Steel
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between City and TMT is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding City Steel Public and TMT Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMT Steel Public and City 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 City Steel Public are associated (or correlated) with TMT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMT Steel Public has no effect on the direction of City Steel i.e., City Steel and TMT Steel go up and down completely randomly.
Pair Corralation between City Steel and TMT Steel
Assuming the 90 days trading horizon City Steel Public is expected to generate 1.0 times more return on investment than TMT Steel. However, City Steel Public is 1.0 times less risky than TMT Steel. It trades about 0.04 of its potential returns per unit of risk. TMT Steel Public is currently generating about 0.04 per unit of risk. If you would invest 216.00 in City Steel Public on December 4, 2024 and sell it today you would lose (47.00) from holding City Steel Public or give up 21.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
City Steel Public vs. TMT Steel Public
Performance |
| Timeline |
| City Steel Public |
| TMT Steel Public |
City Steel and TMT Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with City Steel and TMT Steel
The main advantage of trading using opposite City Steel and TMT Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Steel position performs unexpectedly, TMT 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 TMT Steel will offset losses from the drop in TMT Steel's long position.| City Steel vs. Capital Engineering Network | ||
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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