Correlation Between Nien Hsing and Tong Tai

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

By analyzing existing cross correlation between Nien Hsing Textile and Tong Tai Machine Tool, you can compare the effects of market volatilities on Nien Hsing and Tong Tai 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 Nien Hsing with a short position of Tong Tai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nien Hsing and Tong Tai.

Diversification Opportunities for Nien Hsing and Tong Tai

0.42

Correlation Coefficient

Nien Hsing  Tong Tai

Very weak diversification

The 3 months correlation between Nien and Tong is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Nien Hsing Textile and Tong Tai Machine Tool in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Tai Machine and Nien Hsing 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 Nien Hsing Textile are associated (or correlated) with Tong Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Tai Machine has no effect on the direction of Nien Hsing i.e., Nien Hsing and Tong Tai go up and down completely randomly.

Pair Corralation between Nien Hsing and Tong Tai

Assuming the 90 days trading horizon Nien Hsing Textile is expected to under-perform the Tong Tai. But the stock apears to be less risky and, when comparing its historical volatility, Nien Hsing Textile is 3.53 times less risky than Tong Tai. The stock trades about -0.11 of its potential returns per unit of risk. The Tong Tai Machine Tool is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,190  in Tong Tai Machine Tool on December 4, 2024 and sell it today you would earn a total of  150.00  from holding Tong Tai Machine Tool or generate 4.7% return on investment over 90 days.

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

Nien Hsing Textile  vs.  Tong Tai Machine Tool

Nien Hsing Textile

Risk-Adjusted Performance

Very Weak

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

Tong Tai Machine

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tong Tai Machine Tool are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tong Tai may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nien Hsing and Tong Tai

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

The idea behind Nien Hsing Textile and Tong Tai Machine Tool 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.

Check out your portfolio center.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.