Correlation Between China Steel and Kunyue Development

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

Diversification Opportunities for China Steel and Kunyue Development

-0.57
  Correlation Coefficient

Excellent diversification

The 3 months correlation between China and Kunyue is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Kunyue Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunyue Development 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 Kunyue Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunyue Development has no effect on the direction of China Steel i.e., China Steel and Kunyue Development go up and down completely randomly.

Pair Corralation between China Steel and Kunyue Development

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Kunyue Development. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 2.83 times less risky than Kunyue Development. The stock trades about -0.47 of its potential returns per unit of risk. The Kunyue Development Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,030  in Kunyue Development Co on September 22, 2024 and sell it today you would earn a total of  50.00  from holding Kunyue Development Co or generate 1.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

China Steel Corp  vs.  Kunyue Development Co

 Performance 
       Timeline  
China Steel Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 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.
Kunyue Development 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Kunyue Development Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Kunyue Development is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

China Steel and Kunyue Development Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Steel and Kunyue Development

The main advantage of trading using opposite China Steel and Kunyue Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel position performs unexpectedly, Kunyue Development 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 Kunyue Development will offset losses from the drop in Kunyue Development's long position.
The idea behind China Steel Corp and Kunyue Development Co 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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