Correlation Between TECO Electric and China Steel

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Can any of the company-specific risk be diversified away by investing in both TECO Electric 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 TECO Electric and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TECO Electric Machinery and China Steel Chemical, you can compare the effects of market volatilities on TECO Electric 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 TECO Electric with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of TECO Electric and China Steel.

Diversification Opportunities for TECO Electric and China Steel

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between TECO and China is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding TECO Electric Machinery 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 TECO Electric 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 TECO Electric Machinery 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 TECO Electric i.e., TECO Electric and China Steel go up and down completely randomly.

Pair Corralation between TECO Electric and China Steel

Assuming the 90 days trading horizon TECO Electric Machinery is expected to generate 2.15 times more return on investment than China Steel. However, TECO Electric is 2.15 times more volatile than China Steel Chemical. It trades about 0.07 of its potential returns per unit of risk. China Steel Chemical is currently generating about -0.02 per unit of risk. If you would invest  2,825  in TECO Electric Machinery on September 3, 2024 and sell it today you would earn a total of  2,515  from holding TECO Electric Machinery or generate 89.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

TECO Electric Machinery  vs.  China Steel Chemical

 Performance 
       Timeline  
TECO Electric Machinery 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in TECO Electric Machinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TECO Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.
China Steel Chemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days China Steel Chemical 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.

TECO Electric and China Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with TECO Electric and China Steel

The main advantage of trading using opposite TECO Electric and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TECO Electric 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 TECO Electric Machinery 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.
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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