Correlation Between Li Peng and Feng Hsin

Can any of the company-specific risk be diversified away by investing in both Li Peng and Feng Hsin 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 Li Peng and Feng Hsin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Li Peng Enterprise and Feng Hsin Steel, you can compare the effects of market volatilities on Li Peng and Feng Hsin 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 Li Peng with a short position of Feng Hsin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Peng and Feng Hsin.

Diversification Opportunities for Li Peng and Feng Hsin

0.59

Correlation Coefficient

Li Peng  Feng Hsin

Very weak diversification

The 3 months correlation between 1447 and Feng is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Li Peng Enterprise and Feng Hsin Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feng Hsin Steel and Li Peng 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 Li Peng Enterprise are associated (or correlated) with Feng Hsin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feng Hsin Steel has no effect on the direction of Li Peng i.e., Li Peng and Feng Hsin go up and down completely randomly.

Pair Corralation between Li Peng and Feng Hsin

Assuming the 90 days trading horizon Li Peng is expected to generate 10.0 times less return on investment than Feng Hsin. But when comparing it to its historical volatility, Li Peng Enterprise is 1.41 times less risky than Feng Hsin. It trades about 0.0 of its potential returns per unit of risk. Feng Hsin Steel is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,050  in Feng Hsin Steel on December 25, 2024 and sell it today you would earn a total of  140.00  from holding Feng Hsin Steel or generate 1.99% return on investment over 90 days.

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

Li Peng Enterprise  vs.  Feng Hsin Steel

Li Peng Enterprise

Risk-Adjusted Performance

Weak

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

Feng Hsin Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Feng Hsin Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Feng Hsin is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Li Peng and Feng Hsin

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

The idea behind Li Peng Enterprise and Feng Hsin Steel 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.