Correlation Between China Steel and Cheng Shin

Can any of the company-specific risk be diversified away by investing in both China Steel and Cheng Shin 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 Cheng Shin 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 Cheng Shin Rubber, you can compare the effects of market volatilities on China Steel and Cheng Shin 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 Cheng Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Cheng Shin.

Diversification Opportunities for China Steel and Cheng Shin

0.4

Correlation Coefficient

China Steel  Cheng Shin

Very weak diversification

The 3 months correlation between China and Cheng is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Cheng Shin Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Shin Rubber 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 Cheng Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Shin Rubber has no effect on the direction of China Steel i.e., China Steel and Cheng Shin go up and down completely randomly.

Pair Corralation between China Steel and Cheng Shin

Assuming the 90 days trading horizon China Steel Chemical is expected to generate 0.63 times more return on investment than Cheng Shin. However, China Steel Chemical is 1.6 times less risky than Cheng Shin. It trades about 0.12 of its potential returns per unit of risk. Cheng Shin Rubber is currently generating about 0.01 per unit of risk. If you would invest  9,180  in China Steel Chemical on December 29, 2024 and sell it today you would earn a total of  500.00  from holding China Steel Chemical or generate 5.45% return on investment over 90 days.

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

China Steel Chemical  vs.  Cheng Shin Rubber

China Steel Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Chemical are ranked lower than 9 (%) 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.

Cheng Shin Rubber

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheng Shin Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cheng Shin 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 China Steel and Cheng Shin

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

The idea behind China Steel Chemical and Cheng Shin Rubber 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.