Correlation Between Iron Force and Chun Yuan

Can any of the company-specific risk be diversified away by investing in both Iron Force and Chun Yuan 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 Iron Force and Chun Yuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Iron Force Industrial and Chun Yuan Steel, you can compare the effects of market volatilities on Iron Force and Chun Yuan 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 Iron Force with a short position of Chun Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Force and Chun Yuan.

Diversification Opportunities for Iron Force and Chun Yuan

0.65

Correlation Coefficient

Iron Force  Chun Yuan

Poor diversification

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

Pair Corralation between Iron Force and Chun Yuan

Assuming the 90 days trading horizon Iron Force Industrial is expected to under-perform the Chun Yuan. In addition to that, Iron Force is 1.3 times more volatile than Chun Yuan Steel. It trades about -0.06 of its total potential returns per unit of risk. Chun Yuan Steel is currently generating about 0.04 per unit of volatility. If you would invest  1,850  in Chun Yuan Steel on December 4, 2024 and sell it today you would earn a total of  40.00  from holding Chun Yuan Steel or generate 2.16% return on investment over 90 days.

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

Iron Force Industrial  vs.  Chun Yuan Steel

Iron Force Industrial

Risk-Adjusted Performance

Very Weak

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

Chun Yuan Steel

Risk-Adjusted Performance

Insignificant

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

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

The idea behind Iron Force Industrial and Chun Yuan 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.