Correlation Between Steel Authority and Southern Petrochemicals
Can any of the company-specific risk be diversified away by investing in both Steel Authority and Southern Petrochemicals 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 Steel Authority and Southern Petrochemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Authority of and Southern Petrochemicals Industries, you can compare the effects of market volatilities on Steel Authority and Southern Petrochemicals 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 Steel Authority with a short position of Southern Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Authority and Southern Petrochemicals.
Diversification Opportunities for Steel Authority and Southern Petrochemicals
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Steel and Southern is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals and Steel Authority 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 Steel Authority of are associated (or correlated) with Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Steel Authority i.e., Steel Authority and Southern Petrochemicals go up and down completely randomly.
Pair Corralation between Steel Authority and Southern Petrochemicals
Assuming the 90 days trading horizon Steel Authority of is expected to generate 0.99 times more return on investment than Southern Petrochemicals. However, Steel Authority of is 1.01 times less risky than Southern Petrochemicals. It trades about 0.04 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about 0.01 per unit of risk. If you would invest 8,000 in Steel Authority of on September 20, 2024 and sell it today you would earn a total of 3,891 from holding Steel Authority of or generate 48.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.59% |
| Values | Daily Returns |
Steel Authority of vs. Southern Petrochemicals Indust
Performance |
| Timeline |
| Steel Authority |
| Southern Petrochemicals |
Steel Authority and Southern Petrochemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Authority and Southern Petrochemicals
The main advantage of trading using opposite Steel Authority and Southern Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Authority position performs unexpectedly, Southern Petrochemicals 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 Petrochemicals will offset losses from the drop in Southern Petrochemicals' long position.| Steel Authority vs. Embassy Office Parks | Steel Authority vs. Gujarat Narmada Valley | Steel Authority vs. Gujarat Alkalies and | Steel Authority vs. Indian Metals Ferro |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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