Correlation Between China Steel and Kindom Construction

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

Diversification Opportunities for China Steel and Kindom Construction

-0.37

Correlation Coefficient

China Steel  Kindom Construction

Very good diversification

The 3 months correlation between China and Kindom is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Kindom Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kindom Construction Corp 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 Kindom Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kindom Construction Corp has no effect on the direction of China Steel i.e., China Steel and Kindom Construction go up and down completely randomly.

Pair Corralation between China Steel and Kindom Construction

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Kindom Construction. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 1.99 times less risky than Kindom Construction. The stock trades about -0.08 of its potential returns per unit of risk. The Kindom Construction Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,697  in Kindom Construction Corp on October 7, 2024 and sell it today you would earn a total of  2,333  from holding Kindom Construction Corp or generate 86.5% return on investment over 90 days.

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

China Steel Corp  vs.  Kindom Construction Corp

China Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Corp 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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Kindom Construction Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kindom Construction Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Kindom Construction 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 Kindom Construction

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

The idea behind China Steel Corp and Kindom Construction Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.