Correlation Between China and China Steel
Can any of the company-specific risk be diversified away by investing in both China and China Steel 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 and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Motor Corp and China Steel Corp, you can compare the effects of market volatilities on China and China Steel 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 with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of China and China Steel.
Diversification Opportunities for China and China Steel
-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 Motor Corp and China Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Corp and China 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 Motor Corp are associated (or correlated) with China Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Steel Corp has no effect on the direction of China i.e., China and China Steel go up and down completely randomly.
Pair Corralation between China and China Steel
Assuming the 90 days trading horizon China Motor Corp is expected to generate 2.94 times more return on investment than China Steel. However, China is 2.94 times more volatile than China Steel Corp. It trades about 0.25 of its potential returns per unit of risk. China Steel Corp is currently generating about -0.21 per unit of risk. 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 Motor Corp vs. China Steel Corp
Performance |
| Timeline |
| China Motor Corp |
| China Steel Corp |
China and China Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China and China Steel
The main advantage of trading using opposite China and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China position performs unexpectedly, China Steel 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 Steel will offset losses from the drop in China Steel's long position.| China vs. Chaintech Technology Corp | China vs. AVerMedia Technologies | China vs. Avision | China vs. Clevo Co |
| China Steel vs. Formosa Plastics Corp | China Steel vs. Chunghwa Telecom Co | China Steel vs. Nan Ya Plastics | China Steel vs. Cathay Financial Holding |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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