Correlation Between Microtips Technology and China Steel

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

By analyzing existing cross correlation between Microtips Technology and China Steel Corp, you can compare the effects of market volatilities on Microtips Technology and China 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 Microtips Technology with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microtips Technology and China Steel.

Diversification Opportunities for Microtips Technology and China Steel

0.35

Correlation Coefficient

Microtips Technology  China Steel

Weak diversification

The 3 months correlation between Microtips and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Microtips Technology and China Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Corp and Microtips Technology 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 Microtips Technology are associated (or correlated) with China Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Steel Corp has no effect on the direction of Microtips Technology i.e., Microtips Technology and China Steel go up and down completely randomly.

Pair Corralation between Microtips Technology and China Steel

Assuming the 90 days trading horizon Microtips Technology is expected to generate 3.99 times more return on investment than China Steel. However, Microtips Technology is 3.99 times more volatile than China Steel Corp. It trades about 0.05 of its potential returns per unit of risk. China Steel Corp is currently generating about -0.39 per unit of risk. If you would invest  2,720  in Microtips Technology on October 6, 2024 and sell it today you would earn a total of  30.00  from holding Microtips Technology or generate 1.1% return on investment over 90 days.

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

Microtips Technology  vs.  China Steel Corp

Microtips Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microtips Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Microtips Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with Microtips Technology and China Steel

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

The idea behind Microtips Technology and China Steel Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.