Correlation Between China Steel and Chun Yuan

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

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

Diversification Opportunities for China Steel and Chun Yuan

0.2

Correlation Coefficient

China Steel  Chun Yuan

Modest diversification

The 3 months correlation between China and Chun is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Structure and Chun Yuan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chun Yuan Steel 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 Structure are associated (or correlated) with Chun Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chun Yuan Steel has no effect on the direction of China Steel i.e., China Steel and Chun Yuan go up and down completely randomly.

Pair Corralation between China Steel and Chun Yuan

Assuming the 90 days trading horizon China Steel Structure is expected to under-perform the Chun Yuan. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Structure is 1.58 times less risky than Chun Yuan. The stock trades about -0.73 of its potential returns per unit of risk. The Chun Yuan Steel is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  1,840  in Chun Yuan Steel on September 24, 2024 and sell it today you would lose (50.00) from holding Chun Yuan Steel or give up 2.72% 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 Structure  vs.  Chun Yuan Steel

China Steel Structure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Structure 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.

Chun Yuan Steel

Risk-Adjusted Performance

1 of 100

Weak

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

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

The idea behind China Steel Structure and Chun Yuan Steel 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.