Correlation Between China Steel and China
Can any of the company-specific risk be diversified away by investing in both China Steel and China 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 China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Steel Corp and China Motor Corp, you can compare the effects of market volatilities on China Steel and China 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 China. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and China.
Diversification Opportunities for China Steel and China
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between China and China is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and China Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Motor Corp 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 Corp are associated (or correlated) with China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Motor Corp has no effect on the direction of China Steel i.e., China Steel and China go up and down completely randomly.
Pair Corralation between China Steel and China
Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the China. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 2.94 times less risky than China. The stock trades about -0.21 of its potential returns per unit of risk. The China Motor Corp is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 6,890 in China Motor Corp on September 1, 2024 and sell it today you would earn a total of 1,540 from holding China Motor Corp or generate 22.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
China Steel Corp vs. China Motor Corp
Performance |
| Timeline |
| China Steel Corp |
| China Motor Corp |
China Steel and China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and China
The main advantage of trading using opposite China Steel and China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, China 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 will offset losses from the drop in China's long position.| China Steel vs. Formosa Plastics Corp | China Steel vs. Chunghwa Telecom Co | China Steel vs. Nan Ya Plastics | China Steel vs. Cathay Financial Holding |
| China vs. Chaintech Technology Corp | China vs. AVerMedia Technologies | China vs. Avision | China vs. Clevo 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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