Correlation Between International Steels and Towellers
Can any of the company-specific risk be diversified away by investing in both International Steels and Towellers 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 International Steels and Towellers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Steels and Towellers, you can compare the effects of market volatilities on International Steels and Towellers 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 International Steels with a short position of Towellers. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Steels and Towellers.
Diversification Opportunities for International Steels and Towellers
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Towellers is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and Towellers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Towellers and International Steels 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 International Steels are associated (or correlated) with Towellers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Towellers has no effect on the direction of International Steels i.e., International Steels and Towellers go up and down completely randomly.
Pair Corralation between International Steels and Towellers
Assuming the 90 days trading horizon International Steels is expected to generate 1.04 times more return on investment than Towellers. However, International Steels is 1.04 times more volatile than Towellers. It trades about 0.09 of its potential returns per unit of risk. Towellers is currently generating about 0.03 per unit of risk. If you would invest 4,148 in International Steels on September 12, 2024 and sell it today you would earn a total of 4,120 from holding International Steels or generate 99.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.71% |
| Values | Daily Returns |
International Steels vs. Towellers
Performance |
| Timeline |
| International Steels |
| Towellers |
International Steels and Towellers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Steels and Towellers
The main advantage of trading using opposite International Steels and Towellers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Steels position performs unexpectedly, Towellers 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 Towellers will offset losses from the drop in Towellers' long position.| International Steels vs. Masood Textile Mills | International Steels vs. Fauji Foods | International Steels vs. KSB Pumps | International Steels vs. Mari Petroleum |
| Towellers vs. Lotte Chemical Pakistan | Towellers vs. Ittehad Chemicals | Towellers vs. Pakistan Synthetics | Towellers vs. Nimir Industrial Chemical |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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