Correlation Between Daido Steel and Aluminumof China

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

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

Diversification Opportunities for Daido Steel and Aluminumof China

-0.15

Correlation Coefficient

Daido Steel  Aluminumof China

Good diversification

The 3 months correlation between Daido and Aluminumof is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Daido Steel Co and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminumof China and Daido Steel 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 Daido Steel Co are associated (or correlated) with Aluminumof China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminumof China has no effect on the direction of Daido Steel i.e., Daido Steel and Aluminumof China go up and down completely randomly.

Pair Corralation between Daido Steel and Aluminumof China

Assuming the 90 days horizon Daido Steel Co is expected to under-perform the Aluminumof China. But the stock apears to be less risky and, when comparing its historical volatility, Daido Steel Co is 1.84 times less risky than Aluminumof China. The stock trades about -0.06 of its potential returns per unit of risk. The Aluminum of is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Aluminum of on September 1, 2024 and sell it today you would earn a total of  6.00  from holding Aluminum of or generate 12.24% return on investment over 90 days.

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

Daido Steel Co  vs.  Aluminum of

Daido Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daido Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Aluminumof China

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aluminumof China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daido Steel and Aluminumof China

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

The idea behind Daido Steel Co and Aluminum of 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.