Correlation Between Baoshan Iron and Hang Xiao

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

Diversification Opportunities for Baoshan Iron and Hang Xiao

0.89

Correlation Coefficient

Baoshan Iron  Hang Xiao

Very poor diversification

The 3 months correlation between Baoshan and Hang is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Hang Xiao Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hang Xiao Steel 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 Hang Xiao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hang Xiao Steel has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Hang Xiao go up and down completely randomly.

Pair Corralation between Baoshan Iron and Hang Xiao

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.55 times more return on investment than Hang Xiao. However, Baoshan Iron Steel is 1.82 times less risky than Hang Xiao. It trades about 0.16 of its potential returns per unit of risk. Hang Xiao Steel is currently generating about -0.04 per unit of risk. If you would invest  673.00  in Baoshan Iron Steel on September 20, 2024 and sell it today you would earn a total of  29.00  from holding Baoshan Iron Steel or generate 4.31% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Hang Xiao Steel

Baoshan Iron Steel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Baoshan Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Hang Xiao Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Xiao Steel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hang Xiao sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baoshan Iron and Hang Xiao

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

The idea behind Baoshan Iron Steel and Hang Xiao 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.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.