Correlation Between STEEL EXCHANGE and Asian Paints

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

Diversification Opportunities for STEEL EXCHANGE and Asian Paints

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between STEEL and Asian is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding STEEL EXCHANGE INDIA and Asian Paints Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Paints Limited and STEEL EXCHANGE 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 EXCHANGE INDIA are associated (or correlated) with Asian Paints. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Paints Limited has no effect on the direction of STEEL EXCHANGE i.e., STEEL EXCHANGE and Asian Paints go up and down completely randomly.

Pair Corralation between STEEL EXCHANGE and Asian Paints

Assuming the 90 days trading horizon STEEL EXCHANGE INDIA is expected to generate 1.37 times more return on investment than Asian Paints. However, STEEL EXCHANGE is 1.37 times more volatile than Asian Paints Limited. It trades about -0.12 of its potential returns per unit of risk. Asian Paints Limited is currently generating about -0.34 per unit of risk. If you would invest  1,322  in STEEL EXCHANGE INDIA on September 12, 2024 and sell it today you would lose (208.00) from holding STEEL EXCHANGE INDIA or give up 15.73% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

STEEL EXCHANGE INDIA  vs.  Asian Paints Limited

 Performance 
       Timeline  
STEEL EXCHANGE INDIA 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Asian Paints Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward 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.

STEEL EXCHANGE and Asian Paints Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with STEEL EXCHANGE and Asian Paints

The main advantage of trading using opposite STEEL EXCHANGE and Asian Paints positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STEEL EXCHANGE position performs unexpectedly, Asian Paints 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 Asian Paints will offset losses from the drop in Asian Paints' long position.
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The idea behind STEEL EXCHANGE INDIA and Asian Paints 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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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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