Correlation Between Hsing Ta and Wei Chuan

Can any of the company-specific risk be diversified away by investing in both Hsing Ta and Wei Chuan 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 Hsing Ta and Wei Chuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hsing Ta Cement and Wei Chuan Foods, you can compare the effects of market volatilities on Hsing Ta and Wei Chuan 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 Hsing Ta with a short position of Wei Chuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hsing Ta and Wei Chuan.

Diversification Opportunities for Hsing Ta and Wei Chuan

0.67

Correlation Coefficient

Hsing Ta  Wei Chuan

Poor diversification

The 3 months correlation between Hsing and Wei is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Hsing Ta Cement and Wei Chuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wei Chuan Foods and Hsing Ta 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 Hsing Ta Cement are associated (or correlated) with Wei Chuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wei Chuan Foods has no effect on the direction of Hsing Ta i.e., Hsing Ta and Wei Chuan go up and down completely randomly.

Pair Corralation between Hsing Ta and Wei Chuan

Assuming the 90 days trading horizon Hsing Ta Cement is expected to under-perform the Wei Chuan. In addition to that, Hsing Ta is 1.22 times more volatile than Wei Chuan Foods. It trades about -0.02 of its total potential returns per unit of risk. Wei Chuan Foods is currently generating about -0.01 per unit of volatility. If you would invest  1,785  in Wei Chuan Foods on December 28, 2024 and sell it today you would lose (5.00) from holding Wei Chuan Foods or give up 0.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.21%
Values	Daily Returns

Hsing Ta Cement  vs.  Wei Chuan Foods

Hsing Ta Cement

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hsing Ta Cement has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hsing Ta is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Wei Chuan Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wei Chuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wei Chuan is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Hsing Ta and Wei Chuan

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

The idea behind Hsing Ta Cement and Wei Chuan Foods 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.