Correlation Between Japan Steel and ZhongAn Online

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

By analyzing existing cross correlation between The Japan Steel and ZhongAn Online P, you can compare the effects of market volatilities on Japan Steel and ZhongAn Online 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 Japan Steel with a short position of ZhongAn Online. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Steel and ZhongAn Online.

Diversification Opportunities for Japan Steel and ZhongAn Online

0.04

Correlation Coefficient

Japan Steel  ZhongAn Online

Significant diversification

The 3 months correlation between Japan and ZhongAn is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and ZhongAn Online P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZhongAn Online P and Japan 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 The Japan Steel are associated (or correlated) with ZhongAn Online. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZhongAn Online P has no effect on the direction of Japan Steel i.e., Japan Steel and ZhongAn Online go up and down completely randomly.

Pair Corralation between Japan Steel and ZhongAn Online

Assuming the 90 days horizon Japan Steel is expected to generate 6.4 times less return on investment than ZhongAn Online. But when comparing it to its historical volatility, The Japan Steel is 1.03 times less risky than ZhongAn Online. It trades about 0.01 of its potential returns per unit of risk. ZhongAn Online P is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  143.00  in ZhongAn Online P on December 21, 2024 and sell it today you would earn a total of  12.00  from holding ZhongAn Online P or generate 8.39% return on investment over 90 days.

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

The Japan Steel  vs.  ZhongAn Online P

Japan Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Japan Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ZhongAn Online P

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ZhongAn Online P are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, ZhongAn Online unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Steel and ZhongAn Online

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

The idea behind The Japan Steel and ZhongAn Online P 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.