Correlation Between China Steel and Shinkong Insurance

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

Diversification Opportunities for China Steel and Shinkong Insurance

0.31

Correlation Coefficient

China Steel  Shinkong Insurance

Weak diversification

The 3 months correlation between China and Shinkong is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Shinkong Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shinkong Insurance 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 Shinkong Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shinkong Insurance has no effect on the direction of China Steel i.e., China Steel and Shinkong Insurance go up and down completely randomly.

Pair Corralation between China Steel and Shinkong Insurance

Assuming the 90 days trading horizon China Steel is expected to generate 1.39 times less return on investment than Shinkong Insurance. But when comparing it to its historical volatility, China Steel Chemical is 2.11 times less risky than Shinkong Insurance. It trades about 0.12 of its potential returns per unit of risk. Shinkong Insurance Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,550  in Shinkong Insurance Co on December 28, 2024 and sell it today you would earn a total of  750.00  from holding Shinkong Insurance Co or generate 7.11% return on investment over 90 days.

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

China Steel Chemical  vs.  Shinkong Insurance Co

China Steel Chemical

Risk-Adjusted Performance

Good

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.

Shinkong Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shinkong Insurance Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Shinkong Insurance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China Steel and Shinkong Insurance

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

The idea behind China Steel Chemical and Shinkong Insurance 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.