Correlation Between China Metal and RDC Semiconductor

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

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

Diversification Opportunities for China Metal and RDC Semiconductor

0.84

Correlation Coefficient

China Metal  RDC Semiconductor

Very poor diversification

The 3 months correlation between China and RDC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and RDC Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RDC Semiconductor and China Metal 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 China Metal Products are associated (or correlated) with RDC Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RDC Semiconductor has no effect on the direction of China Metal i.e., China Metal and RDC Semiconductor go up and down completely randomly.

Pair Corralation between China Metal and RDC Semiconductor

Assuming the 90 days trading horizon China Metal Products is expected to under-perform the RDC Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, China Metal Products is 2.19 times less risky than RDC Semiconductor. The stock trades about -0.22 of its potential returns per unit of risk. The RDC Semiconductor Co is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  23,250  in RDC Semiconductor Co on October 6, 2024 and sell it today you would lose (3,250) from holding RDC Semiconductor Co or give up 13.98% of portfolio value over 90 days.

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

China Metal Products  vs.  RDC Semiconductor Co

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products 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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

RDC Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RDC Semiconductor 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.

Pair Trading with China Metal and RDC Semiconductor

The main advantage of trading using opposite China Metal and RDC Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Metal position performs unexpectedly, RDC Semiconductor 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 RDC Semiconductor will offset losses from the drop in RDC Semiconductor's long position.

The idea behind China Metal Products and RDC Semiconductor Co 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.