Correlation Between Chongqing Machinery and BLUESCOPE STEEL

Can any of the company-specific risk be diversified away by investing in both Chongqing Machinery and BLUESCOPE 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 Chongqing Machinery and BLUESCOPE STEEL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chongqing Machinery Electric and BLUESCOPE STEEL, you can compare the effects of market volatilities on Chongqing Machinery and BLUESCOPE 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 Chongqing Machinery with a short position of BLUESCOPE STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Machinery and BLUESCOPE STEEL.

Diversification Opportunities for Chongqing Machinery and BLUESCOPE STEEL

0.72

Correlation Coefficient

Chongqing Machinery  BLUESCOPE STEEL

Poor diversification

The 3 months correlation between Chongqing and BLUESCOPE is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and BLUESCOPE STEEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLUESCOPE STEEL and Chongqing Machinery 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 Chongqing Machinery Electric are associated (or correlated) with BLUESCOPE STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BLUESCOPE STEEL has no effect on the direction of Chongqing Machinery i.e., Chongqing Machinery and BLUESCOPE STEEL go up and down completely randomly.

Pair Corralation between Chongqing Machinery and BLUESCOPE STEEL

Assuming the 90 days horizon Chongqing Machinery Electric is expected to generate 1.16 times more return on investment than BLUESCOPE STEEL. However, Chongqing Machinery is 1.16 times more volatile than BLUESCOPE STEEL. It trades about 0.13 of its potential returns per unit of risk. BLUESCOPE STEEL is currently generating about 0.09 per unit of risk. If you would invest  6.05  in Chongqing Machinery Electric on September 3, 2024 and sell it today you would earn a total of  1.30  from holding Chongqing Machinery Electric or generate 21.49% return on investment over 90 days.

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

Chongqing Machinery Electric  vs.  BLUESCOPE STEEL

Chongqing Machinery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Machinery Electric are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chongqing Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

BLUESCOPE STEEL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BLUESCOPE STEEL are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BLUESCOPE STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Machinery and BLUESCOPE STEEL

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

The idea behind Chongqing Machinery Electric and BLUESCOPE 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.