Correlation Between Giant Manufacturing and China Steel

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Can any of the company-specific risk be diversified away by investing in both Giant Manufacturing and China Steel 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 Giant Manufacturing and China Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Giant Manufacturing Co and China Steel Chemical, you can compare the effects of market volatilities on Giant Manufacturing and China Steel 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 Giant Manufacturing with a short position of China Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Giant Manufacturing and China Steel.

Diversification Opportunities for Giant Manufacturing and China Steel

GiantChinaDiversified AwayGiantChinaDiversified Away100%
0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Giant and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Giant Manufacturing Co and China Steel Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Chemical and Giant Manufacturing 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 Giant Manufacturing Co are associated (or correlated) with China Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Steel Chemical has no effect on the direction of Giant Manufacturing i.e., Giant Manufacturing and China Steel go up and down completely randomly.

Pair Corralation between Giant Manufacturing and China Steel

Assuming the 90 days trading horizon Giant Manufacturing Co is expected to generate 3.28 times more return on investment than China Steel. However, Giant Manufacturing is 3.28 times more volatile than China Steel Chemical. It trades about 0.28 of its potential returns per unit of risk. China Steel Chemical is currently generating about 0.66 per unit of risk. If you would invest  14,350  in Giant Manufacturing Co on November 29, 2024 and sell it today you would earn a total of  1,500  from holding Giant Manufacturing Co or generate 10.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Giant Manufacturing Co  vs.  China Steel Chemical

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-505
JavaScript chart by amCharts 3.21.159921 1723
       Timeline  
Giant Manufacturing 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Giant Manufacturing Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Giant Manufacturing is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb140145150155160
China Steel Chemical 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Steel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb889092949698100

Giant Manufacturing and China Steel Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.27-4.7-3.12-1.550.01.523.124.726.317.91 0.10.20.30.40.5
JavaScript chart by amCharts 3.21.159921 1723
       Returns  

Pair Trading with Giant Manufacturing and China Steel

The main advantage of trading using opposite Giant Manufacturing and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Giant Manufacturing position performs unexpectedly, China Steel 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 Steel will offset losses from the drop in China Steel's long position.
The idea behind Giant Manufacturing Co and China Steel Chemical 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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