Correlation Between China Steel and Tung Ho

Can any of the company-specific risk be diversified away by investing in both China Steel and Tung Ho 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 Tung Ho into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Steel Structure and Tung Ho Steel, you can compare the effects of market volatilities on China Steel and Tung Ho 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 Tung Ho. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and Tung Ho.

Diversification Opportunities for China Steel and Tung Ho

0.51

Correlation Coefficient

China Steel  Tung Ho

Very weak diversification

The 3 months correlation between China and Tung is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Structure and Tung Ho Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tung Ho 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 Structure are associated (or correlated) with Tung Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tung Ho Steel has no effect on the direction of China Steel i.e., China Steel and Tung Ho go up and down completely randomly.

Pair Corralation between China Steel and Tung Ho

Assuming the 90 days trading horizon China Steel Structure is expected to generate 0.7 times more return on investment than Tung Ho. However, China Steel Structure is 1.43 times less risky than Tung Ho. It trades about -0.15 of its potential returns per unit of risk. Tung Ho Steel is currently generating about -0.23 per unit of risk. If you would invest  5,250  in China Steel Structure on September 15, 2024 and sell it today you would lose (120.00) from holding China Steel Structure or give up 2.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

China Steel Structure  vs.  Tung Ho Steel

China Steel Structure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Steel Structure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Tung Ho Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tung Ho Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Steel and Tung Ho

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

The idea behind China Steel Structure and Tung Ho 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.