Correlation Between MSP Steel and Suzlon Energy

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

Diversification Opportunities for MSP Steel and Suzlon Energy

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between MSP and Suzlon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding MSP Steel Power and Suzlon Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzlon Energy Limited and MSP 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 MSP Steel Power are associated (or correlated) with Suzlon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzlon Energy Limited has no effect on the direction of MSP Steel i.e., MSP Steel and Suzlon Energy go up and down completely randomly.

Pair Corralation between MSP Steel and Suzlon Energy

Assuming the 90 days trading horizon MSP Steel is expected to generate 1.38 times less return on investment than Suzlon Energy. But when comparing it to its historical volatility, MSP Steel Power is 1.24 times less risky than Suzlon Energy. It trades about 0.3 of its potential returns per unit of risk. Suzlon Energy Limited is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  5,926  in Suzlon Energy Limited on September 19, 2024 and sell it today you would earn a total of  1,030  from holding Suzlon Energy Limited or generate 17.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

MSP Steel Power  vs.  Suzlon Energy Limited

 Performance 
       Timeline  
MSP Steel Power 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MSP Steel Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Suzlon Energy Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Suzlon Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

MSP Steel and Suzlon Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MSP Steel and Suzlon Energy

The main advantage of trading using opposite MSP Steel and Suzlon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSP Steel position performs unexpectedly, Suzlon Energy 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 Suzlon Energy will offset losses from the drop in Suzlon Energy's long position.
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The idea behind MSP Steel Power and Suzlon Energy Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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