Correlation Between China Steel and Chung Fu

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

Diversification Opportunities for China Steel and Chung Fu

0.91

Correlation Coefficient

China Steel  Chung Fu

Almost no diversification

The 3 months correlation between China and Chung is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Chung Fu Tex International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Fu Tex 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 Chung Fu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Fu Tex has no effect on the direction of China Steel i.e., China Steel and Chung Fu go up and down completely randomly.

Pair Corralation between China Steel and Chung Fu

Assuming the 90 days trading horizon China Steel Corp is expected to generate 0.08 times more return on investment than Chung Fu. However, China Steel Corp is 12.66 times less risky than Chung Fu. It trades about -0.37 of its potential returns per unit of risk. Chung Fu Tex International is currently generating about -0.21 per unit of risk. If you would invest  4,165  in China Steel Corp on October 7, 2024 and sell it today you would lose (105.00) from holding China Steel Corp or give up 2.52% of portfolio value over 90 days.

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

China Steel Corp  vs.  Chung Fu Tex International

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.

Chung Fu Tex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Fu Tex International 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.

Pair Trading with China Steel and Chung Fu

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

The idea behind China Steel Corp and Chung Fu Tex International 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..