Correlation Between China Steel and Dimension Computer

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

Diversification Opportunities for China Steel and Dimension Computer

-0.34

Correlation Coefficient

China Steel  Dimension Computer

Very good diversification

The 3 months correlation between China and Dimension is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and Dimension Computer Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimension Computer 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 Dimension Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimension Computer has no effect on the direction of China Steel i.e., China Steel and Dimension Computer go up and down completely randomly.

Pair Corralation between China Steel and Dimension Computer

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the Dimension Computer. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 23.88 times less risky than Dimension Computer. The stock trades about -0.17 of its potential returns per unit of risk. The Dimension Computer Technology is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,420  in Dimension Computer Technology on December 31, 2024 and sell it today you would earn a total of  1,510  from holding Dimension Computer Technology or generate 62.4% return on investment over 90 days.

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

China Steel Corp  vs.  Dimension Computer Technology

China Steel Corp

Risk-Adjusted Performance

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.

Dimension Computer

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dimension Computer Technology are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Dimension Computer showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Steel and Dimension Computer

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

The idea behind China Steel Corp and Dimension Computer Technology 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.