Correlation Between San Fu and China Steel
Can any of the company-specific risk be diversified away by investing in both San Fu 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 San Fu and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between San Fu Chemical and China Steel Chemical, you can compare the effects of market volatilities on San Fu 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 San Fu with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of San Fu and China Steel.
Diversification Opportunities for San Fu and China Steel
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between San and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding San Fu Chemical and China Steel Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Chemical and San Fu 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 San Fu Chemical 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 Chemical has no effect on the direction of San Fu i.e., San Fu and China Steel go up and down completely randomly.
Pair Corralation between San Fu and China Steel
Assuming the 90 days trading horizon San Fu Chemical is expected to generate 2.01 times more return on investment than China Steel. However, San Fu is 2.01 times more volatile than China Steel Chemical. It trades about 0.01 of its potential returns per unit of risk. China Steel Chemical is currently generating about -0.03 per unit of risk. If you would invest 13,800 in San Fu Chemical on September 1, 2024 and sell it today you would lose (400.00) from holding San Fu Chemical or give up 2.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
San Fu Chemical vs. China Steel Chemical
Performance |
| Timeline |
| San Fu Chemical |
| China Steel Chemical |
San Fu and China Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with San Fu and China Steel
The main advantage of trading using opposite San Fu and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Fu 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.The idea behind San Fu Chemical and China Steel Chemical 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.| China Steel vs. Formosa Chemicals Fibre | China Steel vs. Formosa Plastics Corp | China Steel vs. Cheng Shin Rubber | China Steel vs. President Chain Store |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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