Correlation Between China Steel and Nak Sealing

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

Diversification Opportunities for China Steel and Nak Sealing

0.5

Correlation Coefficient

China Steel  Nak Sealing

Very weak diversification

The 3 months correlation between China and Nak is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical and Nak Sealing Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nak Sealing Technologies 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 Nak Sealing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nak Sealing Technologies has no effect on the direction of China Steel i.e., China Steel and Nak Sealing go up and down completely randomly.

Pair Corralation between China Steel and Nak Sealing

Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the Nak Sealing. In addition to that, China Steel is 1.38 times more volatile than Nak Sealing Technologies. It trades about -0.28 of its total potential returns per unit of risk. Nak Sealing Technologies is currently generating about 0.08 per unit of volatility. If you would invest  11,300  in Nak Sealing Technologies on October 8, 2024 and sell it today you would earn a total of  100.00  from holding Nak Sealing Technologies or generate 0.88% return on investment over 90 days.

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

China Steel Chemical  vs.  Nak Sealing Technologies

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.

Nak Sealing Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Steel Chemical and Nak Sealing Technologies 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 Global Correlations module to find global opportunities by holding instruments from different markets.