Correlation Between China Steel and Chung Hung

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

Diversification Opportunities for China Steel and Chung Hung

0.86

Correlation Coefficient

China Steel  Chung Hung

Very poor diversification

The 3 months correlation between China and Chung is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Structure and Chung Hung Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hung 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 Chung Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hung Steel has no effect on the direction of China Steel i.e., China Steel and Chung Hung go up and down completely randomly.

Pair Corralation between China Steel and Chung Hung

Assuming the 90 days trading horizon China Steel Structure is expected to under-perform the Chung Hung. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Structure is 2.93 times less risky than Chung Hung. The stock trades about -0.13 of its potential returns per unit of risk. The Chung Hung Steel is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,950  in Chung Hung Steel on September 26, 2024 and sell it today you would lose (150.00) from holding Chung Hung Steel or give up 7.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

China Steel Structure  vs.  Chung Hung 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 latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Chung Hung Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Steel Structure and Chung Hung 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.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.