Correlation Between Asia Cement and China Steel

Can any of the company-specific risk be diversified away by investing in both Asia Cement 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 Asia Cement and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Asia Cement Corp and China Steel Corp, you can compare the effects of market volatilities on Asia Cement 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 Asia Cement with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Cement and China Steel.

Diversification Opportunities for Asia Cement and China Steel

0.77

Correlation Coefficient

Asia Cement  China Steel

Poor diversification

The 3 months correlation between Asia and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Asia Cement 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 Asia Cement 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 Asia Cement 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 Asia Cement i.e., Asia Cement and China Steel go up and down completely randomly.

Pair Corralation between Asia Cement and China Steel

Assuming the 90 days trading horizon Asia Cement is expected to generate 1.18 times less return on investment than China Steel. But when comparing it to its historical volatility, Asia Cement Corp is 1.83 times less risky than China Steel. It trades about 0.21 of its potential returns per unit of risk. China Steel Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,000  in China Steel Corp on December 27, 2024 and sell it today you would earn a total of  320.00  from holding China Steel Corp or generate 16.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Asia Cement Corp  vs.  China Steel Corp

Asia Cement Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Cement Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Cement showed solid returns over the last few months and may actually be approaching a breakup point.

China Steel Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Steel showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asia Cement and China Steel

The main advantage of trading using opposite Asia Cement and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asia Cement 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 Asia Cement Corp and China Steel Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.