Correlation Between KRAKATAU STEEL and Tianjin Capital

Can any of the company-specific risk be diversified away by investing in both KRAKATAU STEEL and Tianjin Capital 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 KRAKATAU STEEL and Tianjin Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KRAKATAU STEEL B and Tianjin Capital Environmental, you can compare the effects of market volatilities on KRAKATAU STEEL and Tianjin Capital 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 KRAKATAU STEEL with a short position of Tianjin Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and Tianjin Capital.

Diversification Opportunities for KRAKATAU STEEL and Tianjin Capital

0.77

Correlation Coefficient

KRAKATAU STEEL  Tianjin Capital

Poor diversification

The 3 months correlation between KRAKATAU and Tianjin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi and KRAKATAU 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 KRAKATAU STEEL B are associated (or correlated) with Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of KRAKATAU STEEL i.e., KRAKATAU STEEL and Tianjin Capital go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and Tianjin Capital

Assuming the 90 days trading horizon KRAKATAU STEEL B is expected to generate 1.47 times more return on investment than Tianjin Capital. However, KRAKATAU STEEL is 1.47 times more volatile than Tianjin Capital Environmental. It trades about 0.15 of its potential returns per unit of risk. Tianjin Capital Environmental is currently generating about 0.1 per unit of risk. If you would invest  0.40  in KRAKATAU STEEL B on September 20, 2024 and sell it today you would earn a total of  0.20  from holding KRAKATAU STEEL B or generate 50.0% return on investment over 90 days.

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

KRAKATAU STEEL B   vs.  Tianjin Capital Environmental

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tianjin Capital Envi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tianjin Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KRAKATAU STEEL and Tianjin Capital

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

The idea behind KRAKATAU STEEL B and Tianjin Capital Environmental 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.