Correlation Between China Steel and Te Chang

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

Diversification Opportunities for China Steel and Te Chang

-0.87

Correlation Coefficient

China Steel  Te Chang

Pay attention - limited upside

The 3 months correlation between China and 5511 is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Te Chang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Te Chang Construction 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 Te Chang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Te Chang Construction has no effect on the direction of China Steel i.e., China Steel and Te Chang go up and down completely randomly.

Pair Corralation between China Steel and Te Chang

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Te Chang. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 3.75 times less risky than Te Chang. The stock trades about -0.09 of its potential returns per unit of risk. The Te Chang Construction is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,750  in Te Chang Construction on September 12, 2024 and sell it today you would earn a total of  570.00  from holding Te Chang Construction or generate 9.91% return on investment over 90 days.

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

China Steel Corp  vs.  Te Chang Construction

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.

Te Chang Construction

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Te Chang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Steel and Te Chang

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

The idea behind China Steel Corp and Te Chang Construction 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.