Correlation Between Tehmag Foods and China Steel

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

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

Diversification Opportunities for Tehmag Foods and China Steel

-0.62

Correlation Coefficient

Tehmag Foods  China Steel

Excellent diversification

The 3 months correlation between Tehmag and China is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Tehmag Foods 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 Tehmag Foods 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 Tehmag Foods 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 Tehmag Foods i.e., Tehmag Foods and China Steel go up and down completely randomly.

Pair Corralation between Tehmag Foods and China Steel

Assuming the 90 days trading horizon Tehmag Foods is expected to generate 3.16 times more return on investment than China Steel. However, Tehmag Foods is 3.16 times more volatile than China Steel Corp. It trades about 0.06 of its potential returns per unit of risk. China Steel Corp is currently generating about -0.16 per unit of risk. If you would invest  30,900  in Tehmag Foods on December 22, 2024 and sell it today you would earn a total of  800.00  from holding Tehmag Foods or generate 2.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.25%
Values	Daily Returns

Tehmag Foods  vs.  China Steel Corp

Tehmag Foods

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tehmag Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Tehmag Foods is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

China Steel Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tehmag Foods and China Steel

The main advantage of trading using opposite Tehmag Foods and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tehmag Foods 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 Tehmag Foods 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.