Correlation Between Coal India and STEEL EXCHANGE

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Can any of the company-specific risk be diversified away by investing in both Coal India and STEEL EXCHANGE 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 Coal India and STEEL EXCHANGE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coal India Limited and STEEL EXCHANGE INDIA, you can compare the effects of market volatilities on Coal India and STEEL EXCHANGE 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 Coal India with a short position of STEEL EXCHANGE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coal India and STEEL EXCHANGE.

Diversification Opportunities for Coal India and STEEL EXCHANGE

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Coal and STEEL is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Coal India Limited and STEEL EXCHANGE INDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL EXCHANGE INDIA and Coal India 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 Coal India Limited are associated (or correlated) with STEEL EXCHANGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEEL EXCHANGE INDIA has no effect on the direction of Coal India i.e., Coal India and STEEL EXCHANGE go up and down completely randomly.

Pair Corralation between Coal India and STEEL EXCHANGE

Assuming the 90 days trading horizon Coal India Limited is expected to generate 0.57 times more return on investment than STEEL EXCHANGE. However, Coal India Limited is 1.74 times less risky than STEEL EXCHANGE. It trades about 0.08 of its potential returns per unit of risk. STEEL EXCHANGE INDIA is currently generating about -0.02 per unit of risk. If you would invest  18,842  in Coal India Limited on November 19, 2024 and sell it today you would earn a total of  16,578  from holding Coal India Limited or generate 87.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Coal India Limited  vs.  STEEL EXCHANGE INDIA

 Performance 
       Timeline  
Coal India Limited 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Coal India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
STEEL EXCHANGE INDIA 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days STEEL EXCHANGE INDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Coal India and STEEL EXCHANGE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coal India and STEEL EXCHANGE

The main advantage of trading using opposite Coal India and STEEL EXCHANGE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coal India position performs unexpectedly, STEEL EXCHANGE 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 STEEL EXCHANGE will offset losses from the drop in STEEL EXCHANGE's long position.
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The idea behind Coal India Limited and STEEL EXCHANGE INDIA 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.
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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