Correlation Between First Steamship and China Container

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

By analyzing existing cross correlation between First Steamship Co and China Container Terminal, you can compare the effects of market volatilities on First Steamship and China Container 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 First Steamship with a short position of China Container. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Steamship and China Container.

Diversification Opportunities for First Steamship and China Container

0.34

Correlation Coefficient

First Steamship  China Container

Weak diversification

The 3 months correlation between First and China is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding First Steamship Co and China Container Terminal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Container Terminal and First Steamship 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 First Steamship Co are associated (or correlated) with China Container. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Container Terminal has no effect on the direction of First Steamship i.e., First Steamship and China Container go up and down completely randomly.

Pair Corralation between First Steamship and China Container

Assuming the 90 days trading horizon First Steamship is expected to generate 2.63 times less return on investment than China Container. But when comparing it to its historical volatility, First Steamship Co is 1.74 times less risky than China Container. It trades about 0.04 of its potential returns per unit of risk. China Container Terminal is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,005  in China Container Terminal on September 13, 2024 and sell it today you would earn a total of  340.00  from holding China Container Terminal or generate 11.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

First Steamship Co  vs.  China Container Terminal

First Steamship

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Steamship Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Steamship is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

China Container Terminal

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Container Terminal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Container showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Steamship and China Container

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

The idea behind First Steamship Co and China Container Terminal 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.