Correlation Between Great China and Chun Yuan

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

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

Diversification Opportunities for Great China and Chun Yuan

0.78

Correlation Coefficient

Great China  Chun Yuan

Poor diversification

The 3 months correlation between Great and Chun is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Chun Yuan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chun Yuan Steel and Great China 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 Great China Metal are associated (or correlated) with Chun Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chun Yuan Steel has no effect on the direction of Great China i.e., Great China and Chun Yuan go up and down completely randomly.

Pair Corralation between Great China and Chun Yuan

Assuming the 90 days trading horizon Great China is expected to generate 3.13 times less return on investment than Chun Yuan. But when comparing it to its historical volatility, Great China Metal is 2.24 times less risky than Chun Yuan. It trades about 0.16 of its potential returns per unit of risk. Chun Yuan Steel is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,815  in Chun Yuan Steel on December 23, 2024 and sell it today you would earn a total of  285.00  from holding Chun Yuan Steel or generate 15.7% return on investment over 90 days.

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

Great China Metal  vs.  Chun Yuan Steel

Great China Metal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Great China Metal are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Great China is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chun Yuan Steel

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chun Yuan Steel are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chun Yuan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great China and Chun Yuan

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

The idea behind Great China Metal and Chun Yuan 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.