Correlation Between China Steel and Great Taipei

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

Diversification Opportunities for China Steel and Great Taipei

0.31

Correlation Coefficient

China Steel  Great Taipei

Weak diversification

The 3 months correlation between China and Great is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Great Taipei Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Taipei Gas 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 Great Taipei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Taipei Gas has no effect on the direction of China Steel i.e., China Steel and Great Taipei go up and down completely randomly.

Pair Corralation between China Steel and Great Taipei

Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the Great Taipei. In addition to that, China Steel is 2.58 times more volatile than Great Taipei Gas. It trades about -0.01 of its total potential returns per unit of risk. Great Taipei Gas is currently generating about 0.0 per unit of volatility. If you would invest  3,037  in Great Taipei Gas on September 4, 2024 and sell it today you would lose (2.00) from holding Great Taipei Gas or give up 0.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

China Steel Chemical  vs.  Great Taipei Gas

China Steel Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Great Taipei Gas

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Steel and Great Taipei

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

The idea behind China Steel Chemical and Great Taipei Gas 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.