Correlation Between Champion Iron and POSCO Holdings

Can any of the company-specific risk be diversified away by investing in both Champion Iron and POSCO Holdings 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 Champion Iron and POSCO Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Champion Iron Limited and POSCO Holdings, you can compare the effects of market volatilities on Champion Iron and POSCO Holdings 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 Champion Iron with a short position of POSCO Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Champion Iron and POSCO Holdings.

Diversification Opportunities for Champion Iron and POSCO Holdings

0.37

Correlation Coefficient

Champion Iron  POSCO Holdings

Weak diversification

The 3 months correlation between Champion and POSCO is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Champion Iron Limited and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Champion Iron 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 Champion Iron Limited are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Champion Iron i.e., Champion Iron and POSCO Holdings go up and down completely randomly.

Pair Corralation between Champion Iron and POSCO Holdings

Assuming the 90 days horizon Champion Iron Limited is expected to generate 1.89 times more return on investment than POSCO Holdings. However, Champion Iron is 1.89 times more volatile than POSCO Holdings. It trades about 0.07 of its potential returns per unit of risk. POSCO Holdings is currently generating about -0.24 per unit of risk. If you would invest  344.00  in Champion Iron Limited on September 15, 2024 and sell it today you would earn a total of  51.00  from holding Champion Iron Limited or generate 14.83% return on investment over 90 days.

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

Champion Iron Limited  vs.  POSCO Holdings

Champion Iron Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Champion Iron Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Champion Iron reported solid returns over the last few months and may actually be approaching a breakup point.

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Champion Iron and POSCO Holdings

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

The idea behind Champion Iron Limited and POSCO Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.