Correlation Between CHINA DEVELOPMENT and China Steel

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

By analyzing existing cross correlation between CHINA DEVELOPMENT FINANCIAL and China Steel Structure, you can compare the effects of market volatilities on CHINA DEVELOPMENT and China Steel 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 DEVELOPMENT with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA DEVELOPMENT and China Steel.

Diversification Opportunities for CHINA DEVELOPMENT and China Steel

-0.44

Correlation Coefficient

CHINA DEVELOPMENT  China Steel

Very good diversification

The 3 months correlation between CHINA and China is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding CHINA DEVELOPMENT FINANCIAL and China Steel Structure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Structure and CHINA DEVELOPMENT 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 DEVELOPMENT FINANCIAL are associated (or correlated) with China Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Steel Structure has no effect on the direction of CHINA DEVELOPMENT i.e., CHINA DEVELOPMENT and China Steel go up and down completely randomly.

Pair Corralation between CHINA DEVELOPMENT and China Steel

Assuming the 90 days trading horizon CHINA DEVELOPMENT FINANCIAL is expected to generate 0.55 times more return on investment than China Steel. However, CHINA DEVELOPMENT FINANCIAL is 1.81 times less risky than China Steel. It trades about 0.16 of its potential returns per unit of risk. China Steel Structure is currently generating about -0.1 per unit of risk. If you would invest  749.00  in CHINA DEVELOPMENT FINANCIAL on September 25, 2024 and sell it today you would earn a total of  35.00  from holding CHINA DEVELOPMENT FINANCIAL or generate 4.67% return on investment over 90 days.

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

CHINA DEVELOPMENT FINANCIAL  vs.  China Steel Structure

CHINA DEVELOPMENT

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA DEVELOPMENT FINANCIAL are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CHINA DEVELOPMENT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with CHINA DEVELOPMENT and China Steel

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

The idea behind CHINA DEVELOPMENT FINANCIAL and China Steel Structure 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.