Correlation Between CHC Resources and China Steel

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

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

Diversification Opportunities for CHC Resources and China Steel

0.79

Correlation Coefficient

CHC Resources  China Steel

Poor diversification

The 3 months correlation between CHC and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding CHC Resources Corp 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 CHC Resources 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 CHC Resources Corp 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 CHC Resources i.e., CHC Resources and China Steel go up and down completely randomly.

Pair Corralation between CHC Resources and China Steel

Assuming the 90 days trading horizon CHC Resources is expected to generate 1.03 times less return on investment than China Steel. But when comparing it to its historical volatility, CHC Resources Corp is 1.21 times less risky than China Steel. It trades about 0.66 of its potential returns per unit of risk. China Steel Chemical is currently generating about 0.56 of returns per unit of risk over similar time horizon. If you would invest  9,210  in China Steel Chemical on December 5, 2024 and sell it today you would earn a total of  670.00  from holding China Steel Chemical or generate 7.27% return on investment over 90 days.

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

CHC Resources Corp  vs.  China Steel Chemical

CHC Resources Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CHC Resources Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CHC Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Steel Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Steel Chemical are ranked lower than 4 (%) 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.

Pair Trading with CHC Resources and China Steel

The main advantage of trading using opposite CHC Resources and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHC Resources 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 CHC Resources Corp 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.