Correlation Between China Steel and TMP Steel

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

Diversification Opportunities for China Steel and TMP Steel

-0.11

Correlation Coefficient

China Steel  TMP Steel

Good diversification

The 3 months correlation between China and TMP is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Corp and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel 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 TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of China Steel i.e., China Steel and TMP Steel go up and down completely randomly.

Pair Corralation between China Steel and TMP Steel

Assuming the 90 days trading horizon China Steel Corp is expected to under-perform the TMP Steel. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Corp is 4.13 times less risky than TMP Steel. The stock trades about -0.19 of its potential returns per unit of risk. The TMP Steel is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,715  in TMP Steel on December 30, 2024 and sell it today you would earn a total of  50.00  from holding TMP Steel or generate 1.84% 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.  TMP Steel

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.

TMP Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TMP Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, TMP Steel 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 TMP Steel

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

The idea behind China Steel Corp and TMP Steel 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.