Correlation Between China Steel and Aspeed Technology

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

Diversification Opportunities for China Steel and Aspeed Technology

0.61

Correlation Coefficient

China Steel  Aspeed Technology

Poor diversification

The 3 months correlation between China and Aspeed is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Aspeed Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspeed Technology 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 Aspeed Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspeed Technology has no effect on the direction of China Steel i.e., China Steel and Aspeed Technology go up and down completely randomly.

Pair Corralation between China Steel and Aspeed Technology

Assuming the 90 days trading horizon China Steel is expected to generate 1.86 times less return on investment than Aspeed Technology. But when comparing it to its historical volatility, China Steel Chemical is 4.58 times less risky than Aspeed Technology. It trades about 0.56 of its potential returns per unit of risk. Aspeed Technology is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  319,500  in Aspeed Technology on December 5, 2024 and sell it today you would earn a total of  42,000  from holding Aspeed Technology or generate 13.15% return on investment over 90 days.

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

China Steel Chemical  vs.  Aspeed Technology

China Steel Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Chemical are ranked lower than 4 (%) 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.

Aspeed Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aspeed Technology 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 April 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 Aspeed Technology

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

The idea behind China Steel Chemical and Aspeed Technology 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.