Correlation Between China Steel and Daxin Materials

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

Diversification Opportunities for China Steel and Daxin Materials

0.88

Correlation Coefficient

China Steel  Daxin Materials

Very poor diversification

The 3 months correlation between China and Daxin is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Daxin Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daxin Materials 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 Daxin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daxin Materials Corp has no effect on the direction of China Steel i.e., China Steel and Daxin Materials go up and down completely randomly.

Pair Corralation between China Steel and Daxin Materials

Assuming the 90 days trading horizon China Steel Corp is expected to generate 0.28 times more return on investment than Daxin Materials. However, China Steel Corp is 3.53 times less risky than Daxin Materials. It trades about -0.49 of its potential returns per unit of risk. Daxin Materials Corp is currently generating about -0.22 per unit of risk. If you would invest  2,210  in China Steel Corp on September 27, 2024 and sell it today you would lose (215.00) from holding China Steel Corp or give up 9.73% of portfolio value over 90 days.

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

China Steel Corp  vs.  Daxin Materials 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Daxin Materials Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daxin Materials 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with China Steel and Daxin Materials

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

The idea behind China Steel Corp and Daxin Materials 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.