Correlation Between China Steel and Yung Chi
Can any of the company-specific risk be diversified away by investing in both China Steel and Yung Chi 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 Yung Chi 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 Yung Chi Paint, you can compare the effects of market volatilities on China Steel and Yung Chi 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 Yung Chi. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Yung Chi.
Diversification Opportunities for China Steel and Yung Chi
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between China and Yung is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Yung Chi Paint in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yung Chi Paint 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 Yung Chi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yung Chi Paint has no effect on the direction of China Steel i.e., China Steel and Yung Chi go up and down completely randomly.
Pair Corralation between China Steel and Yung Chi
Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the Yung Chi. In addition to that, China Steel is 1.82 times more volatile than Yung Chi Paint. It trades about -0.01 of its total potential returns per unit of risk. Yung Chi Paint is currently generating about -0.01 per unit of volatility. If you would invest 7,560 in Yung Chi Paint on November 3, 2024 and sell it today you would lose (10.00) from holding Yung Chi Paint or give up 0.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Steel Chemical vs. Yung Chi Paint
Performance |
| Timeline |
| China Steel Chemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Yung Chi Paint |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
China Steel and Yung Chi Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and Yung Chi
The main advantage of trading using opposite China Steel and Yung Chi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, Yung Chi 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 Yung Chi will offset losses from the drop in Yung Chi's long position.The idea behind China Steel Chemical and Yung Chi Paint 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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