Correlation Between Daido Steel and Tianjin Capital

Can any of the company-specific risk be diversified away by investing in both Daido Steel and Tianjin Capital 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 Tianjin Capital 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 Tianjin Capital Environmental, you can compare the effects of market volatilities on Daido Steel and Tianjin Capital 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 Tianjin Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daido Steel and Tianjin Capital.

Diversification Opportunities for Daido Steel and Tianjin Capital

-0.67

Correlation Coefficient

Daido Steel  Tianjin Capital

Excellent diversification

The 3 months correlation between Daido and Tianjin is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Daido Steel Co and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi 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 Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Daido Steel i.e., Daido Steel and Tianjin Capital go up and down completely randomly.

Pair Corralation between Daido Steel and Tianjin Capital

Assuming the 90 days horizon Daido Steel Co is expected to under-perform the Tianjin Capital. But the stock apears to be less risky and, when comparing its historical volatility, Daido Steel Co is 1.84 times less risky than Tianjin Capital. The stock trades about -0.12 of its potential returns per unit of risk. The Tianjin Capital Environmental is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Tianjin Capital Environmental on September 4, 2024 and sell it today you would earn a total of  6.00  from holding Tianjin Capital Environmental or generate 18.75% return on investment over 90 days.

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

Daido Steel Co  vs.  Tianjin Capital Environmental

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tianjin Capital Envi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tianjin Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daido Steel and Tianjin Capital

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

The idea behind Daido Steel Co and Tianjin Capital Environmental 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.