Correlation Between Hota Industrial and China Steel

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

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

Diversification Opportunities for Hota Industrial and China Steel

-0.43

Correlation Coefficient

Hota Industrial  China Steel

Very good diversification

The 3 months correlation between Hota and China is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Hota Industrial Mfg and China Steel Structure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Structure and Hota Industrial 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 Hota Industrial Mfg 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 Structure has no effect on the direction of Hota Industrial i.e., Hota Industrial and China Steel go up and down completely randomly.

Pair Corralation between Hota Industrial and China Steel

Assuming the 90 days trading horizon Hota Industrial Mfg is expected to generate 3.53 times more return on investment than China Steel. However, Hota Industrial is 3.53 times more volatile than China Steel Structure. It trades about 0.04 of its potential returns per unit of risk. China Steel Structure is currently generating about -0.08 per unit of risk. If you would invest  5,660  in Hota Industrial Mfg on October 26, 2024 and sell it today you would earn a total of  340.00  from holding Hota Industrial Mfg or generate 6.01% return on investment over 90 days.

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

Hota Industrial Mfg  vs.  China Steel Structure

Hota Industrial Mfg

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hota Industrial Mfg are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hota Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Steel Structure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Structure 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 Hota Industrial and China Steel

The main advantage of trading using opposite Hota Industrial and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hota Industrial 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 Hota Industrial Mfg and China Steel Structure 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.