Correlation Between China Steel and Tong Tai

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

Diversification Opportunities for China Steel and Tong Tai

0.65

Correlation Coefficient

China Steel  Tong Tai

Poor diversification

The 3 months correlation between China and Tong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Tong Tai Machine Tool in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Tai Machine 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 Tong Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Tai Machine has no effect on the direction of China Steel i.e., China Steel and Tong Tai go up and down completely randomly.

Pair Corralation between China Steel and Tong Tai

Assuming the 90 days trading horizon China Steel Corp is expected to generate 0.09 times more return on investment than Tong Tai. However, China Steel Corp is 10.9 times less risky than Tong Tai. It trades about -0.11 of its potential returns per unit of risk. Tong Tai Machine Tool is currently generating about -0.1 per unit of risk. If you would invest  4,250  in China Steel Corp on September 15, 2024 and sell it today you would lose (85.00) from holding China Steel Corp or give up 2.0% 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.  Tong Tai Machine Tool

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.

Tong Tai Machine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tong Tai Machine Tool 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 Tong Tai

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

The idea behind China Steel Corp and Tong Tai Machine Tool 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.