Correlation Between China Steel and Taiwan Shin
Can any of the company-specific risk be diversified away by investing in both China Steel and Taiwan Shin 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 Taiwan Shin 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 Taiwan Shin Kong, you can compare the effects of market volatilities on China Steel and Taiwan Shin 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 Taiwan Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Taiwan Shin.
Diversification Opportunities for China Steel and Taiwan Shin
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Taiwan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Taiwan Shin Kong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Shin Kong 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 Taiwan Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Shin Kong has no effect on the direction of China Steel i.e., China Steel and Taiwan Shin go up and down completely randomly.
Pair Corralation between China Steel and Taiwan Shin
Assuming the 90 days trading horizon China Steel Chemical is expected to generate 2.22 times more return on investment than Taiwan Shin. However, China Steel is 2.22 times more volatile than Taiwan Shin Kong. It trades about 0.66 of its potential returns per unit of risk. Taiwan Shin Kong is currently generating about 0.2 per unit of risk. If you would invest 9,210 in China Steel Chemical on November 29, 2024 and sell it today you would earn a total of 700.00 from holding China Steel Chemical or generate 7.6% 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. Taiwan Shin Kong
Performance |
Timeline |
China Steel Chemical |
Taiwan Shin Kong |
China Steel and Taiwan Shin Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with China Steel and Taiwan Shin
The main advantage of trading using opposite China Steel and Taiwan Shin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, Taiwan Shin 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 Taiwan Shin will offset losses from the drop in Taiwan Shin's long position.China Steel vs. Formosa Chemicals Fibre | ||
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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