Correlation Between China Steel and Gold Rain

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

Diversification Opportunities for China Steel and Gold Rain

-0.35

Correlation Coefficient

China Steel  Gold Rain

Very good diversification

The 3 months correlation between China and Gold is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Gold Rain Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Rain Enterprises 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 Gold Rain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Rain Enterprises has no effect on the direction of China Steel i.e., China Steel and Gold Rain go up and down completely randomly.

Pair Corralation between China Steel and Gold Rain

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Gold Rain. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 6.92 times less risky than Gold Rain. The stock trades about -0.15 of its potential returns per unit of risk. The Gold Rain Enterprises is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,360  in Gold Rain Enterprises on September 21, 2024 and sell it today you would earn a total of  70.00  from holding Gold Rain Enterprises or generate 1.31% 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.  Gold Rain Enterprises

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.

Gold Rain Enterprises

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Rain Enterprises are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Gold Rain 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 Gold Rain

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

The idea behind China Steel Corp and Gold Rain Enterprises 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.