Correlation Between China Conch and Tenaris SA

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

By analyzing existing cross correlation between China Conch Venture and Tenaris SA ADR, you can compare the effects of market volatilities on China Conch and Tenaris SA 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 China Conch with a short position of Tenaris SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Conch and Tenaris SA.

Diversification Opportunities for China Conch and Tenaris SA

0.53

Correlation Coefficient

China Conch  Tenaris SA

Very weak diversification

The 3 months correlation between China and Tenaris is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Conch Venture and Tenaris SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA ADR and China Conch 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 China Conch Venture are associated (or correlated) with Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA ADR has no effect on the direction of China Conch i.e., China Conch and Tenaris SA go up and down completely randomly.

Pair Corralation between China Conch and Tenaris SA

Assuming the 90 days horizon China Conch Venture is expected to generate 3.05 times more return on investment than Tenaris SA. However, China Conch is 3.05 times more volatile than Tenaris SA ADR. It trades about 0.22 of its potential returns per unit of risk. Tenaris SA ADR is currently generating about -0.11 per unit of risk. If you would invest  78.00  in China Conch Venture on October 6, 2024 and sell it today you would earn a total of  15.00  from holding China Conch Venture or generate 19.23% return on investment over 90 days.

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

China Conch Venture  vs.  Tenaris SA ADR

China Conch Venture

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Conch Venture are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, China Conch reported solid returns over the last few months and may actually be approaching a breakup point.

Tenaris SA ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Conch and Tenaris SA

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

The idea behind China Conch Venture and Tenaris SA ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.