Correlation Between China Man and China Steel
Can any of the company-specific risk be diversified away by investing in both China Man 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 Man 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 Man Made Fiber and China Steel Chemical, you can compare the effects of market volatilities on China Man 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 Man with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Man and China Steel.
Diversification Opportunities for China Man and China Steel
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and China is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding China Man Made Fiber 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 China Man 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 Man Made Fiber 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 China Man i.e., China Man and China Steel go up and down completely randomly.
Pair Corralation between China Man and China Steel
Assuming the 90 days trading horizon China Man Made Fiber is expected to generate 1.31 times more return on investment than China Steel. However, China Man is 1.31 times more volatile than China Steel Chemical. It trades about 0.01 of its potential returns per unit of risk. China Steel Chemical is currently generating about -0.07 per unit of risk. If you would invest 811.00 in China Man Made Fiber on September 1, 2024 and sell it today you would earn a total of 8.00 from holding China Man Made Fiber or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Man Made Fiber vs. China Steel Chemical
Performance |
| Timeline |
| China Man Made |
| China Steel Chemical |
China Man and China Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Man and China Steel
The main advantage of trading using opposite China Man and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Man 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.| China Man vs. Oriental Union Chemical | China Man vs. China Petrochemical Development | China Man vs. Taiwan Styrene Monomer | China Man vs. Grand Pacific Petrochemical |
| China Steel vs. Formosa Chemicals Fibre | China Steel vs. Formosa Plastics Corp | China Steel vs. Cheng Shin Rubber | China Steel vs. President Chain Store |
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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