Correlation Between Great China and Iron Force

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

Diversification Opportunities for Great China and Iron Force

0.0

Correlation Coefficient

Great China  Iron Force

Pay attention - limited upside

The 3 months correlation between Great and Iron is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Iron Force Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Force Industrial 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 Iron Force. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Force Industrial has no effect on the direction of Great China i.e., Great China and Iron Force go up and down completely randomly.

Pair Corralation between Great China and Iron Force

Assuming the 90 days trading horizon Great China is expected to generate 16.59 times less return on investment than Iron Force. But when comparing it to its historical volatility, Great China Metal is 4.73 times less risky than Iron Force. It trades about 0.01 of its potential returns per unit of risk. Iron Force Industrial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,933  in Iron Force Industrial on December 4, 2024 and sell it today you would earn a total of  1,977  from holding Iron Force Industrial or generate 24.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Great China Metal  vs.  Iron Force Industrial

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 15 (%) 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.

Iron Force Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iron Force Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Iron Force is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Great China and Iron Force

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

The idea behind Great China Metal and Iron Force Industrial 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.