Correlation Between China Steel and New Asia
Can any of the company-specific risk be diversified away by investing in both China Steel and New Asia 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 New Asia 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 New Asia Construction, you can compare the effects of market volatilities on China Steel and New Asia 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 New Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and New Asia.
Diversification Opportunities for China Steel and New Asia
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between China and New is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and New Asia Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Asia Construction 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 New Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Asia Construction has no effect on the direction of China Steel i.e., China Steel and New Asia go up and down completely randomly.
Pair Corralation between China Steel and New Asia
Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the New Asia. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 1.41 times less risky than New Asia. The stock trades about -0.21 of its potential returns per unit of risk. The New Asia Construction is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,200 in New Asia Construction on September 1, 2024 and sell it today you would earn a total of 135.00 from holding New Asia Construction or generate 11.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Steel Corp vs. New Asia Construction
Performance |
| Timeline |
| China Steel Corp |
| New Asia Construction |
China Steel and New Asia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and New Asia
The main advantage of trading using opposite China Steel and New Asia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, New Asia 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 New Asia will offset losses from the drop in New Asia'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 |
| New Asia vs. BES Engineering Co | New Asia vs. Continental Holdings Corp | New Asia vs. Kee Tai Properties | New Asia vs. Hung Sheng Construction |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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