Correlation Between Baker Steel and Fidelity China

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

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

Diversification Opportunities for Baker Steel and Fidelity China

-0.05

Correlation Coefficient

Baker Steel  Fidelity China

Good diversification

The 3 months correlation between Baker and Fidelity is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Baker Steel Resources and Fidelity China Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity China Special and Baker 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 Baker Steel Resources are associated (or correlated) with Fidelity China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity China Special has no effect on the direction of Baker Steel i.e., Baker Steel and Fidelity China go up and down completely randomly.

Pair Corralation between Baker Steel and Fidelity China

Assuming the 90 days trading horizon Baker Steel is expected to generate 1.31 times less return on investment than Fidelity China. But when comparing it to its historical volatility, Baker Steel Resources is 1.24 times less risky than Fidelity China. It trades about 0.15 of its potential returns per unit of risk. Fidelity China Special is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  17,160  in Fidelity China Special on September 14, 2024 and sell it today you would earn a total of  4,940  from holding Fidelity China Special or generate 28.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Baker Steel Resources  vs.  Fidelity China Special

Baker Steel Resources

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Steel Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Baker Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fidelity China Special

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity China Special are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Fidelity China unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baker Steel and Fidelity China

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

The idea behind Baker Steel Resources and Fidelity China Special 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.