Correlation Between China Steel and Tehmag Foods

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

Diversification Opportunities for China Steel and Tehmag Foods

0.62

Correlation Coefficient

China Steel  Tehmag Foods

Poor diversification

The 3 months correlation between China and Tehmag is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Tehmag Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tehmag Foods 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 Tehmag Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tehmag Foods has no effect on the direction of China Steel i.e., China Steel and Tehmag Foods go up and down completely randomly.

Pair Corralation between China Steel and Tehmag Foods

Assuming the 90 days trading horizon China Steel Corp is expected to generate 155.58 times more return on investment than Tehmag Foods. However, China Steel is 155.58 times more volatile than Tehmag Foods. It trades about 0.08 of its potential returns per unit of risk. Tehmag Foods is currently generating about 0.04 per unit of risk. If you would invest  4,365  in China Steel Corp on September 24, 2024 and sell it today you would lose (225.00) from holding China Steel Corp or give up 5.15% of portfolio value over 90 days.

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

China Steel Corp  vs.  Tehmag Foods

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 comparatively stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Tehmag Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Steel Corp and Tehmag Foods 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.