Correlation Between China Steel and Charoen Pokphand
Can any of the company-specific risk be diversified away by investing in both China Steel and Charoen Pokphand 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 Charoen Pokphand 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 Charoen Pokphand Enterprise, you can compare the effects of market volatilities on China Steel and Charoen Pokphand 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 Charoen Pokphand. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Charoen Pokphand.
Diversification Opportunities for China Steel and Charoen Pokphand
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Charoen is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Charoen Pokphand Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charoen Pokphand Ent 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 Charoen Pokphand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charoen Pokphand Ent has no effect on the direction of China Steel i.e., China Steel and Charoen Pokphand go up and down completely randomly.
Pair Corralation between China Steel and Charoen Pokphand
Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Charoen Pokphand. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 3.26 times less risky than Charoen Pokphand. The stock trades about -0.5 of its potential returns per unit of risk. The Charoen Pokphand Enterprise is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 9,150 in Charoen Pokphand Enterprise on November 3, 2024 and sell it today you would earn a total of 130.00 from holding Charoen Pokphand Enterprise or generate 1.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Steel Corp vs. Charoen Pokphand Enterprise
Performance |
| Timeline |
| China Steel Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Charoen Pokphand Ent |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
China Steel and Charoen Pokphand Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and Charoen Pokphand
The main advantage of trading using opposite China Steel and Charoen Pokphand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, Charoen Pokphand 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 Charoen Pokphand will offset losses from the drop in Charoen Pokphand's long position.The idea behind China Steel Corp and Charoen Pokphand Enterprise 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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