Correlation Between Nan Ya and China Steel
Can any of the company-specific risk be diversified away by investing in both Nan Ya 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 Nan Ya and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nan Ya Plastics and China Steel Chemical, you can compare the effects of market volatilities on Nan Ya 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 Nan Ya with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nan Ya and China Steel.
Diversification Opportunities for Nan Ya and China Steel
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nan and China is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Nan Ya Plastics and China Steel Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Chemical and Nan Ya 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 Nan Ya Plastics 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 Chemical has no effect on the direction of Nan Ya i.e., Nan Ya and China Steel go up and down completely randomly.
Pair Corralation between Nan Ya and China Steel
Assuming the 90 days trading horizon Nan Ya Plastics is expected to generate 2.73 times more return on investment than China Steel. However, Nan Ya is 2.73 times more volatile than China Steel Chemical. It trades about 0.1 of its potential returns per unit of risk. China Steel Chemical is currently generating about 0.03 per unit of risk. If you would invest 3,125 in Nan Ya Plastics on November 6, 2024 and sell it today you would earn a total of 110.00 from holding Nan Ya Plastics or generate 3.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nan Ya Plastics vs. China Steel Chemical
Performance |
| Timeline |
| Nan Ya Plastics |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| China Steel Chemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Nan Ya and China Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nan Ya and China Steel
The main advantage of trading using opposite Nan Ya and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nan Ya 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 Nan Ya Plastics and China Steel Chemical 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.Check out your portfolio center.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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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