Correlation Between China Steel and Far Eastern

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

By analyzing existing cross correlation between China Steel Corp and Far Eastern Department, you can compare the effects of market volatilities on China Steel and Far Eastern 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 Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Far Eastern.

Diversification Opportunities for China Steel and Far Eastern

0.18

Correlation Coefficient

China Steel  Far Eastern

Average diversification

The 3 months correlation between China and Far is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Far Eastern Department in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern Department 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 Corp are associated (or correlated) with Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern Department has no effect on the direction of China Steel i.e., China Steel and Far Eastern go up and down completely randomly.

Pair Corralation between China Steel and Far Eastern

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Far Eastern. In addition to that, China Steel is 1.8 times more volatile than Far Eastern Department. It trades about -0.34 of its total potential returns per unit of risk. Far Eastern Department is currently generating about -0.53 per unit of volatility. If you would invest  2,615  in Far Eastern Department on September 12, 2024 and sell it today you would lose (215.00) from holding Far Eastern Department or give up 8.22% of portfolio value over 90 days.

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

China Steel Corp  vs.  Far Eastern Department

China Steel Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Corp are ranked lower than 2 (%) 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.

Far Eastern Department

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far Eastern Department has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Steel and Far Eastern

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

The idea behind China Steel Corp and Far Eastern Department 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.