Correlation Between China Steel and Tex Ray

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

Diversification Opportunities for China Steel and Tex Ray

-0.41

Correlation Coefficient

China Steel  Tex Ray

Very good diversification

The 3 months correlation between China and Tex is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Tex Ray Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tex Ray Industrial 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 Tex Ray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tex Ray Industrial has no effect on the direction of China Steel i.e., China Steel and Tex Ray go up and down completely randomly.

Pair Corralation between China Steel and Tex Ray

Assuming the 90 days trading horizon China Steel Corp is expected to generate 39.11 times more return on investment than Tex Ray. However, China Steel is 39.11 times more volatile than Tex Ray Industrial Co. It trades about 0.04 of its potential returns per unit of risk. Tex Ray Industrial Co is currently generating about -0.01 per unit of risk. If you would invest  4,483  in China Steel Corp on September 20, 2024 and sell it today you would lose (333.00) from holding China Steel Corp or give up 7.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

China Steel Corp  vs.  Tex Ray Industrial Co

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.

Tex Ray Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Steel Corp and Tex Ray Industrial 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.