Correlation Between China Steel and Grand Pacific

Can any of the company-specific risk be diversified away by investing in both China Steel and Grand Pacific 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 Grand Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Steel Corp and Grand Pacific Petrochemical, you can compare the effects of market volatilities on China Steel and Grand Pacific 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 Grand Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Grand Pacific.

Diversification Opportunities for China Steel and Grand Pacific

0.67

Correlation Coefficient

China Steel  Grand Pacific

Poor diversification

The 3 months correlation between China and Grand is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Grand Pacific Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Pacific Petroc 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 Corp are associated (or correlated) with Grand Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Pacific Petroc has no effect on the direction of China Steel i.e., China Steel and Grand Pacific go up and down completely randomly.

Pair Corralation between China Steel and Grand Pacific

Assuming the 90 days trading horizon China Steel Corp is expected to generate 1.21 times more return on investment than Grand Pacific. However, China Steel is 1.21 times more volatile than Grand Pacific Petrochemical. It trades about 0.1 of its potential returns per unit of risk. Grand Pacific Petrochemical is currently generating about -0.07 per unit of risk. If you would invest  2,165  in China Steel Corp on December 4, 2024 and sell it today you would earn a total of  235.00  from holding China Steel Corp or generate 10.85% return on investment over 90 days.

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

China Steel Corp  vs.  Grand Pacific Petrochemical

China Steel Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Steel showed solid returns over the last few months and may actually be approaching a breakup point.

Grand Pacific Petroc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grand Pacific Petrochemical 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.

Pair Trading with China Steel and Grand Pacific

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

The idea behind China Steel Corp and Grand Pacific Petrochemical 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.