Correlation Between Steel Authority and Prakash Industries

Can any of the company-specific risk be diversified away by investing in both Steel Authority and Prakash Industries 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 Prakash Industries 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 Prakash Industries Limited, you can compare the effects of market volatilities on Steel Authority and Prakash Industries 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 Prakash Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Authority and Prakash Industries.

Diversification Opportunities for Steel Authority and Prakash Industries

0.47

Correlation Coefficient

Steel Authority  Prakash Industries

Very weak diversification

The 3 months correlation between Steel and Prakash is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Prakash Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prakash Industries 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 Prakash Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prakash Industries has no effect on the direction of Steel Authority i.e., Steel Authority and Prakash Industries go up and down completely randomly.

Pair Corralation between Steel Authority and Prakash Industries

Assuming the 90 days trading horizon Steel Authority of is expected to generate 0.92 times more return on investment than Prakash Industries. However, Steel Authority of is 1.08 times less risky than Prakash Industries. It trades about -0.02 of its potential returns per unit of risk. Prakash Industries Limited is currently generating about -0.05 per unit of risk. If you would invest  16,480  in Steel Authority of on February 28, 2024 and sell it today you would lose (240.00) from holding Steel Authority of or give up 1.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Steel Authority of  vs.  Prakash Industries Limited

Steel Authority

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Authority of are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Steel Authority unveiled solid returns over the last few months and may actually be approaching a breakup point.

Prakash Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prakash Industries Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Prakash Industries is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Steel Authority and Prakash Industries

The main advantage of trading using opposite Steel Authority and Prakash Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Authority position performs unexpectedly, Prakash Industries 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 Prakash Industries will offset losses from the drop in Prakash Industries' long position.

The idea behind Steel Authority of and Prakash Industries 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.