Correlation Between China Steel and Oriental Union
Can any of the company-specific risk be diversified away by investing in both China Steel and Oriental Union 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 Steel and Oriental Union into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Steel Chemical and Oriental Union Chemical, you can compare the effects of market volatilities on China Steel and Oriental Union 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 Steel with a short position of Oriental Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Oriental Union.
Diversification Opportunities for China Steel and Oriental Union
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Oriental is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Oriental Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Union Chemical and China 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 China Steel Chemical are associated (or correlated) with Oriental Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Union Chemical has no effect on the direction of China Steel i.e., China Steel and Oriental Union go up and down completely randomly.
Pair Corralation between China Steel and Oriental Union
Assuming the 90 days trading horizon China Steel Chemical is expected to generate 0.85 times more return on investment than Oriental Union. However, China Steel Chemical is 1.17 times less risky than Oriental Union. It trades about -0.01 of its potential returns per unit of risk. Oriental Union Chemical is currently generating about -0.43 per unit of risk. If you would invest 9,770 in China Steel Chemical on August 26, 2024 and sell it today you would lose (20.00) from holding China Steel Chemical or give up 0.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Steel Chemical vs. Oriental Union Chemical
Performance |
| Timeline |
| China Steel Chemical |
| Oriental Union Chemical |
China Steel and Oriental Union Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and Oriental Union
The main advantage of trading using opposite China Steel and Oriental Union positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, Oriental Union 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 Oriental Union will offset losses from the drop in Oriental Union's long position.| China Steel vs. Formosa Chemicals Fibre | China Steel vs. Formosa Plastics Corp | China Steel vs. Cheng Shin Rubber | China Steel vs. President Chain Store |
| Oriental Union vs. Cheng Shin Rubber | Oriental Union vs. Taiwan Cement Corp | Oriental Union vs. China Steel Chemical | Oriental Union vs. Yulon Motor Co |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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