Correlation Between Olympic Steel and Transphorm Technology

Can any of the company-specific risk be diversified away by investing in both Olympic Steel and Transphorm Technology 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 Olympic Steel and Transphorm Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Olympic Steel and Transphorm Technology, you can compare the effects of market volatilities on Olympic Steel and Transphorm Technology 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 Olympic Steel with a short position of Transphorm Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olympic Steel and Transphorm Technology.

Diversification Opportunities for Olympic Steel and Transphorm Technology

0.52

Correlation Coefficient

Olympic Steel  Transphorm Technology

Very weak diversification

The 3 months correlation between Olympic and Transphorm is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and Transphorm Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transphorm Technology and Olympic 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 Olympic Steel are associated (or correlated) with Transphorm Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transphorm Technology has no effect on the direction of Olympic Steel i.e., Olympic Steel and Transphorm Technology go up and down completely randomly.

Pair Corralation between Olympic Steel and Transphorm Technology

Given the investment horizon of 90 days Olympic Steel is expected to generate 4.28 times more return on investment than Transphorm Technology. However, Olympic Steel is 4.28 times more volatile than Transphorm Technology. It trades about -0.02 of its potential returns per unit of risk. Transphorm Technology is currently generating about -0.19 per unit of risk. If you would invest  6,821  in Olympic Steel on January 26, 2024 and sell it today you would lose (65.00) from holding Olympic Steel or give up 0.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Olympic Steel  vs.  Transphorm Technology

Olympic Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Olympic Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Transphorm Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transphorm Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Transphorm Technology is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Olympic Steel and Transphorm Technology

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

The idea behind Olympic Steel and Transphorm Technology 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.