Correlation Between China Steel and Huaku Development

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

Diversification Opportunities for China Steel and Huaku Development

0.75

Correlation Coefficient

China Steel  Huaku Development

Poor diversification

The 3 months correlation between China and Huaku is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Huaku Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaku Development 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 Huaku Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaku Development has no effect on the direction of China Steel i.e., China Steel and Huaku Development go up and down completely randomly.

Pair Corralation between China Steel and Huaku Development

Assuming the 90 days trading horizon China Steel Chemical is expected to generate 0.39 times more return on investment than Huaku Development. However, China Steel Chemical is 2.54 times less risky than Huaku Development. It trades about -0.01 of its potential returns per unit of risk. Huaku Development Co is currently generating about -0.14 per unit of risk. If you would invest  9,500  in China Steel Chemical on September 15, 2024 and sell it today you would lose (20.00) from holding China Steel Chemical or give up 0.21% of portfolio value over 90 days.

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

China Steel Chemical  vs.  Huaku Development Co

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 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.

Huaku Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaku Development Co 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 January 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 Huaku Development

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

The idea behind China Steel Chemical and Huaku Development 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.

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 Stocks Directory module to find actively traded stocks across global markets.