Correlation Between TongFu Microelectronics and Techshine Electronics

Can any of the company-specific risk be diversified away by investing in both TongFu Microelectronics and Techshine Electronics 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 TongFu Microelectronics and Techshine Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TongFu Microelectronics Co and Techshine Electronics Co, you can compare the effects of market volatilities on TongFu Microelectronics and Techshine Electronics 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 TongFu Microelectronics with a short position of Techshine Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of TongFu Microelectronics and Techshine Electronics.

Diversification Opportunities for TongFu Microelectronics and Techshine Electronics

0.74

Correlation Coefficient

TongFu Microelectronics  Techshine Electronics

Poor diversification

The 3 months correlation between TongFu and Techshine is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding TongFu Microelectronics Co and Techshine Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techshine Electronics and TongFu Microelectronics 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 TongFu Microelectronics Co are associated (or correlated) with Techshine Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techshine Electronics has no effect on the direction of TongFu Microelectronics i.e., TongFu Microelectronics and Techshine Electronics go up and down completely randomly.

Pair Corralation between TongFu Microelectronics and Techshine Electronics

Assuming the 90 days trading horizon TongFu Microelectronics Co is expected to generate 1.08 times more return on investment than Techshine Electronics. However, TongFu Microelectronics is 1.08 times more volatile than Techshine Electronics Co. It trades about 0.1 of its potential returns per unit of risk. Techshine Electronics Co is currently generating about 0.06 per unit of risk. If you would invest  2,089  in TongFu Microelectronics Co on October 4, 2024 and sell it today you would earn a total of  866.00  from holding TongFu Microelectronics Co or generate 41.46% return on investment over 90 days.

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

TongFu Microelectronics Co  vs.  Techshine Electronics Co

TongFu Microelectronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TongFu Microelectronics Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TongFu Microelectronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Techshine Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Techshine Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Techshine Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TongFu Microelectronics and Techshine Electronics

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

The idea behind TongFu Microelectronics Co and Techshine Electronics Co 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.