Correlation Between Lealea Enterprise and China Steel

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

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

Diversification Opportunities for Lealea Enterprise and China Steel

0.52

Correlation Coefficient

Lealea Enterprise  China Steel

Very weak diversification

The 3 months correlation between Lealea and China is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Lealea Enterprise Co 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 Lealea Enterprise 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 Lealea Enterprise Co 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 Lealea Enterprise i.e., Lealea Enterprise and China Steel go up and down completely randomly.

Pair Corralation between Lealea Enterprise and China Steel

Assuming the 90 days trading horizon Lealea Enterprise Co is expected to under-perform the China Steel. In addition to that, Lealea Enterprise is 1.24 times more volatile than China Steel Chemical. It trades about -0.12 of its total potential returns per unit of risk. China Steel Chemical is currently generating about 0.04 per unit of volatility. If you would invest  9,710  in China Steel Chemical on December 4, 2024 and sell it today you would earn a total of  170.00  from holding China Steel Chemical or generate 1.75% return on investment over 90 days.

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

Lealea Enterprise Co  vs.  China Steel Chemical

Lealea Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lealea Enterprise Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

China Steel Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Lealea Enterprise and China Steel

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

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.