Correlation Between TMT Steel and 2S Metal
Can any of the company-specific risk be diversified away by investing in both TMT Steel and 2S Metal 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 TMT Steel and 2S Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TMT Steel Public and 2S Metal Public, you can compare the effects of market volatilities on TMT Steel and 2S Metal 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 TMT Steel with a short position of 2S Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMT Steel and 2S Metal.
Diversification Opportunities for TMT Steel and 2S Metal
Very weak diversification
The 3 months correlation between TMT and 2S Metal is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding TMT Steel Public and 2S Metal Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2S Metal Public and TMT 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 TMT Steel Public are associated (or correlated) with 2S Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2S Metal Public has no effect on the direction of TMT Steel i.e., TMT Steel and 2S Metal go up and down completely randomly.
Pair Corralation between TMT Steel and 2S Metal
Assuming the 90 days trading horizon TMT Steel Public is expected to under-perform the 2S Metal. But the stock apears to be less risky and, when comparing its historical volatility, TMT Steel Public is 1.41 times less risky than 2S Metal. The stock trades about -0.96 of its potential returns per unit of risk. The 2S Metal Public is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest 294.00 in 2S Metal Public on August 31, 2024 and sell it today you would lose (16.00) from holding 2S Metal Public or give up 5.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
TMT Steel Public vs. 2S Metal Public
Performance |
| Timeline |
| TMT Steel Public |
| 2S Metal Public |
TMT Steel and 2S Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TMT Steel and 2S Metal
The main advantage of trading using opposite TMT Steel and 2S Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMT Steel position performs unexpectedly, 2S Metal 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 2S Metal will offset losses from the drop in 2S Metal's long position.| TMT Steel vs. MCS Steel Public | TMT Steel vs. Thai Vegetable Oil | TMT Steel vs. Pacific Pipe Public | TMT Steel vs. Tipco Foods Public |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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