Correlation Between Pacific Hospital and China Steel

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

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

Diversification Opportunities for Pacific Hospital and China Steel

-0.56

Correlation Coefficient

Pacific Hospital  China Steel

Excellent diversification

The 3 months correlation between Pacific and China is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Hospital Supply 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 Pacific Hospital 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 Pacific Hospital Supply 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 Pacific Hospital i.e., Pacific Hospital and China Steel go up and down completely randomly.

Pair Corralation between Pacific Hospital and China Steel

Assuming the 90 days trading horizon Pacific Hospital Supply is expected to generate 2.12 times more return on investment than China Steel. However, Pacific Hospital is 2.12 times more volatile than China Steel Corp. It trades about 0.09 of its potential returns per unit of risk. China Steel Corp is currently generating about -0.15 per unit of risk. If you would invest  8,950  in Pacific Hospital Supply on September 19, 2024 and sell it today you would earn a total of  300.00  from holding Pacific Hospital Supply or generate 3.35% return on investment over 90 days.

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

Pacific Hospital Supply  vs.  China Steel Corp

Pacific Hospital Supply

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Hospital Supply are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Pacific Hospital 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 Pacific Hospital and China Steel

The main advantage of trading using opposite Pacific Hospital and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pacific Hospital 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 Pacific Hospital Supply 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.