Correlation Between Baoshan Iron and Konfoong Materials

Can any of the company-specific risk be diversified away by investing in both Baoshan Iron and Konfoong Materials 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 Konfoong Materials 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 Konfoong Materials International, you can compare the effects of market volatilities on Baoshan Iron and Konfoong Materials 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 Konfoong Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baoshan Iron and Konfoong Materials.

Diversification Opportunities for Baoshan Iron and Konfoong Materials

0.37

Correlation Coefficient

Baoshan Iron  Konfoong Materials

Weak diversification

The 3 months correlation between Baoshan and Konfoong is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Konfoong Materials Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Konfoong Materials 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 Konfoong Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Konfoong Materials has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Konfoong Materials go up and down completely randomly.

Pair Corralation between Baoshan Iron and Konfoong Materials

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.69 times more return on investment than Konfoong Materials. However, Baoshan Iron Steel is 1.44 times less risky than Konfoong Materials. It trades about 0.09 of its potential returns per unit of risk. Konfoong Materials International is currently generating about -0.02 per unit of risk. If you would invest  699.00  in Baoshan Iron Steel on December 26, 2024 and sell it today you would earn a total of  54.00  from holding Baoshan Iron Steel or generate 7.73% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Konfoong Materials Internation

Baoshan Iron Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Baoshan Iron may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Konfoong Materials

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Baoshan Iron and Konfoong Materials

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

The idea behind Baoshan Iron Steel and Konfoong Materials International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.