Correlation Between Tong Tai and China Steel
Can any of the company-specific risk be diversified away by investing in both Tong Tai 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 Tong Tai and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tong Tai Machine Tool and China Steel Corp, you can compare the effects of market volatilities on Tong Tai 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 Tong Tai with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Tai and China Steel.
Diversification Opportunities for Tong Tai and China Steel
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tong and China is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Tong Tai Machine Tool 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 Tong Tai 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 Tong Tai Machine Tool 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 Tong Tai i.e., Tong Tai and China Steel go up and down completely randomly.
Pair Corralation between Tong Tai and China Steel
Assuming the 90 days trading horizon Tong Tai is expected to generate 22.11 times less return on investment than China Steel. But when comparing it to its historical volatility, Tong Tai Machine Tool is 21.64 times less risky than China Steel. It trades about 0.08 of its potential returns per unit of risk. China Steel Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,350 in China Steel Corp on September 2, 2024 and sell it today you would lose (175.00) from holding China Steel Corp or give up 4.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tong Tai Machine Tool vs. China Steel Corp
Performance |
| Timeline |
| Tong Tai Machine |
| China Steel Corp |
Tong Tai and China Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tong Tai and China Steel
The main advantage of trading using opposite Tong Tai and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tong Tai 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.| Tong Tai vs. Kaulin Mfg | Tong Tai vs. Nien Hsing Textile | Tong Tai vs. Awea Mechantronic Co | Tong Tai vs. Min Aik Technology |
| China Steel vs. Synmosa Biopharma | China Steel vs. Taiwan Glass Ind | China Steel vs. Tong Tai Machine Tool | China Steel vs. Oriental Union Chemical |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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