Correlation Between China Steel and Chung Hung

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

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

Diversification Opportunities for China Steel and Chung Hung

0.9

Correlation Coefficient

China Steel  Chung Hung

Almost no diversification

The 3 months correlation between China and Chung is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Chung Hung Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hung Steel and China Steel 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 Steel Chemical are associated (or correlated) with Chung Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hung Steel has no effect on the direction of China Steel i.e., China Steel and Chung Hung go up and down completely randomly.

Pair Corralation between China Steel and Chung Hung

Assuming the 90 days trading horizon China Steel Chemical is expected to generate 0.56 times more return on investment than Chung Hung. However, China Steel Chemical is 1.8 times less risky than Chung Hung. It trades about -0.02 of its potential returns per unit of risk. Chung Hung Steel is currently generating about -0.04 per unit of risk. If you would invest  10,600  in China Steel Chemical on October 4, 2024 and sell it today you would lose (1,390) from holding China Steel Chemical or give up 13.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.79%
Values	Daily Returns

China Steel Chemical  vs.  Chung Hung Steel

China Steel Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Chemical 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.

Chung Hung Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Hung Steel 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.

Pair Trading with China Steel and Chung Hung

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

The idea behind China Steel Chemical and Chung Hung Steel 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.