Correlation Between China Steel and San Fu

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

Diversification Opportunities for China Steel and San Fu

-0.16

Correlation Coefficient

China Steel  San Fu

Good diversification

The 3 months correlation between China and San is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and San Fu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Fu Chemical 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 San Fu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Fu Chemical has no effect on the direction of China Steel i.e., China Steel and San Fu go up and down completely randomly.

Pair Corralation between China Steel and San Fu

Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the San Fu. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Chemical is 3.56 times less risky than San Fu. The stock trades about -0.21 of its potential returns per unit of risk. The San Fu Chemical is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  13,100  in San Fu Chemical on October 4, 2024 and sell it today you would lose (200.00) from holding San Fu Chemical or give up 1.53% of portfolio value over 90 days.

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

China Steel Chemical  vs.  San Fu Chemical

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 weak 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.

San Fu Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days San Fu Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, San Fu 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 San Fu

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

The idea behind China Steel Chemical and San Fu Chemical 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.