Correlation Between Chow Steel and Rayong Wire

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

By analyzing existing cross correlation between Chow Steel Industries and Rayong Wire Industries, you can compare the effects of market volatilities on Chow Steel and Rayong Wire 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 Chow Steel with a short position of Rayong Wire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chow Steel and Rayong Wire.

Diversification Opportunities for Chow Steel and Rayong Wire

-0.72

Correlation Coefficient

Chow Steel  Rayong Wire

Pay attention - limited upside

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

Pair Corralation between Chow Steel and Rayong Wire

Assuming the 90 days trading horizon Chow Steel Industries is expected to under-perform the Rayong Wire. In addition to that, Chow Steel is 1.47 times more volatile than Rayong Wire Industries. It trades about -0.22 of its total potential returns per unit of risk. Rayong Wire Industries is currently generating about -0.27 per unit of volatility. If you would invest  57.00  in Rayong Wire Industries on February 3, 2024 and sell it today you would lose (4.00) from holding Rayong Wire Industries or give up 7.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Chow Steel Industries  vs.  Rayong Wire Industries

Chow Steel Industries

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chow Steel Industries are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Chow Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Rayong Wire Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rayong Wire Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Chow Steel and Rayong Wire

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

The idea behind Chow Steel Industries and Rayong Wire Industries 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.