Correlation Between China Steel and Great China

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

Diversification Opportunities for China Steel and Great China

0.36

Correlation Coefficient

China Steel  Great China

Weak diversification

The 3 months correlation between China and Great is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Great China Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great China Metal 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 Great China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great China Metal has no effect on the direction of China Steel i.e., China Steel and Great China go up and down completely randomly.

Pair Corralation between China Steel and Great China

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Great China. In addition to that, China Steel is 3.91 times more volatile than Great China Metal. It trades about -0.06 of its total potential returns per unit of risk. Great China Metal is currently generating about -0.03 per unit of volatility. If you would invest  2,300  in Great China Metal on September 24, 2024 and sell it today you would lose (15.00) from holding Great China Metal or give up 0.65% of portfolio value over 90 days.

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

China Steel Corp  vs.  Great China Metal

China Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Corp 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great China Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Great China 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 China

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

The idea behind China Steel Corp and Great China Metal 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.