Correlation Between China Steel and Hota Industrial

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

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

Diversification Opportunities for China Steel and Hota Industrial

-0.26

Correlation Coefficient

China Steel  Hota Industrial

Very good diversification

The 3 months correlation between China and Hota is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Hota Industrial Mfg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hota Industrial Mfg and China 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 China Steel Chemical are associated (or correlated) with Hota Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hota Industrial Mfg has no effect on the direction of China Steel i.e., China Steel and Hota Industrial go up and down completely randomly.

Pair Corralation between China Steel and Hota Industrial

Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the Hota Industrial. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Chemical is 3.24 times less risky than Hota Industrial. The stock trades about -0.03 of its potential returns per unit of risk. The Hota Industrial Mfg is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,600  in Hota Industrial Mfg on September 3, 2024 and sell it today you would lose (140.00) from holding Hota Industrial Mfg or give up 2.12% of portfolio value over 90 days.

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

China Steel Chemical  vs.  Hota Industrial Mfg

China Steel Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Steel is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Hota Industrial Mfg

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hota Industrial Mfg has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hota Industrial is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Steel and Hota Industrial

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

The idea behind China Steel Chemical and Hota Industrial Mfg 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.