Correlation Between China Steel and Allied Industrial

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

Diversification Opportunities for China Steel and Allied Industrial

-0.28

Correlation Coefficient

China Steel  Allied Industrial

Very good diversification

The 3 months correlation between China and Allied is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Allied Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Industrial 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 Allied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Industrial has no effect on the direction of China Steel i.e., China Steel and Allied Industrial go up and down completely randomly.

Pair Corralation between China Steel and Allied Industrial

Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the Allied Industrial. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Chemical is 2.19 times less risky than Allied Industrial. The stock trades about -0.29 of its potential returns per unit of risk. The Allied Industrial is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,270  in Allied Industrial on October 5, 2024 and sell it today you would earn a total of  70.00  from holding Allied Industrial or generate 5.51% return on investment over 90 days.

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

China Steel Chemical  vs.  Allied Industrial

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.

Allied Industrial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Industrial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Allied Industrial 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 Allied Industrial

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

The idea behind China Steel Chemical and Allied Industrial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.