Correlation Between Chung Hsin and Lee Chi

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

By analyzing existing cross correlation between Chung Hsin Electric Machinery and Lee Chi Enterprises, you can compare the effects of market volatilities on Chung Hsin and Lee Chi 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 Chung Hsin with a short position of Lee Chi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hsin and Lee Chi.

Diversification Opportunities for Chung Hsin and Lee Chi

0.34

Correlation Coefficient

Chung Hsin  Lee Chi

Weak diversification

The 3 months correlation between Chung and Lee is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hsin Electric Machinery and Lee Chi Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lee Chi Enterprises and Chung Hsin 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 Chung Hsin Electric Machinery are associated (or correlated) with Lee Chi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lee Chi Enterprises has no effect on the direction of Chung Hsin i.e., Chung Hsin and Lee Chi go up and down completely randomly.

Pair Corralation between Chung Hsin and Lee Chi

Assuming the 90 days trading horizon Chung Hsin Electric Machinery is expected to under-perform the Lee Chi. In addition to that, Chung Hsin is 2.27 times more volatile than Lee Chi Enterprises. It trades about -0.05 of its total potential returns per unit of risk. Lee Chi Enterprises is currently generating about 0.38 per unit of volatility. If you would invest  1,340  in Lee Chi Enterprises on December 4, 2024 and sell it today you would earn a total of  105.00  from holding Lee Chi Enterprises or generate 7.84% return on investment over 90 days.

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

Chung Hsin Electric Machinery  vs.  Lee Chi Enterprises

Chung Hsin Electric

Risk-Adjusted Performance

Very Weak

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

Lee Chi Enterprises

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lee Chi Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lee Chi 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 Chung Hsin and Lee Chi

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

The idea behind Chung Hsin Electric Machinery and Lee Chi Enterprises 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.