Correlation Between China Steel and Arbor Technology

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

Diversification Opportunities for China Steel and Arbor Technology

-0.32

Correlation Coefficient

China Steel  Arbor Technology

Very good diversification

The 3 months correlation between China and Arbor is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Arbor Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbor Technology 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 Arbor Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbor Technology has no effect on the direction of China Steel i.e., China Steel and Arbor Technology go up and down completely randomly.

Pair Corralation between China Steel and Arbor Technology

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Arbor Technology. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 8.98 times less risky than Arbor Technology. The stock trades about -0.16 of its potential returns per unit of risk. The Arbor Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,160  in Arbor Technology on August 31, 2024 and sell it today you would earn a total of  340.00  from holding Arbor Technology or generate 8.17% return on investment over 90 days.

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

China Steel Corp  vs.  Arbor Technology

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 comparatively stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Arbor Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Arbor Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with China Steel and Arbor Technology

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

The idea behind China Steel Corp and Arbor Technology 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.