Correlation Between Taiwan Styrene and China Steel

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

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

Diversification Opportunities for Taiwan Styrene and China Steel

0.48

Correlation Coefficient

Taiwan Styrene  China Steel

Very weak diversification

The 3 months correlation between Taiwan and China is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Styrene Monomer 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 Taiwan Styrene 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 Taiwan Styrene Monomer 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 Taiwan Styrene i.e., Taiwan Styrene and China Steel go up and down completely randomly.

Pair Corralation between Taiwan Styrene and China Steel

Assuming the 90 days trading horizon Taiwan Styrene Monomer is expected to under-perform the China Steel. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Styrene Monomer is 1.34 times less risky than China Steel. The stock trades about -0.21 of its potential returns per unit of risk. The China Steel Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,105  in China Steel Corp on September 13, 2024 and sell it today you would lose (25.00) from holding China Steel Corp or give up 1.19% of portfolio value over 90 days.

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

Taiwan Styrene Monomer  vs.  China Steel Corp

Taiwan Styrene Monomer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Styrene Monomer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

China Steel Corp

Risk-Adjusted Performance

0 of 100

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 fairly stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Styrene and China Steel

The main advantage of trading using opposite Taiwan Styrene and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Styrene 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 Taiwan Styrene Monomer 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.