Correlation Between Baoshan Iron and China Reform

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

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

Diversification Opportunities for Baoshan Iron and China Reform

-0.44

Correlation Coefficient

Baoshan Iron  China Reform

Very good diversification

The 3 months correlation between Baoshan and China is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and China Reform Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reform Health and Baoshan Iron 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 Baoshan Iron Steel are associated (or correlated) with China Reform. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reform Health has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and China Reform go up and down completely randomly.

Pair Corralation between Baoshan Iron and China Reform

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.65 times more return on investment than China Reform. However, Baoshan Iron Steel is 1.55 times less risky than China Reform. It trades about -0.09 of its potential returns per unit of risk. China Reform Health is currently generating about -0.53 per unit of risk. If you would invest  695.00  in Baoshan Iron Steel on October 10, 2024 and sell it today you would lose (22.00) from holding Baoshan Iron Steel or give up 3.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Baoshan Iron Steel  vs.  China Reform Health

Baoshan Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baoshan Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Baoshan Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Reform Health

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Reform Health are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Reform may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Baoshan Iron and China Reform

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

The idea behind Baoshan Iron Steel and China Reform Health 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.