Correlation Between Chung Hsin and Hong Tai

Can any of the company-specific risk be diversified away by investing in both Chung Hsin and Hong 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 Chung Hsin and Hong Tai 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 Hong Tai Electric, you can compare the effects of market volatilities on Chung Hsin and Hong 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 Chung Hsin with a short position of Hong Tai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hsin and Hong Tai.

Diversification Opportunities for Chung Hsin and Hong Tai

0.04

Correlation Coefficient

Chung Hsin  Hong Tai

Significant diversification

The 3 months correlation between Chung and Hong is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hsin Electric Machinery and Hong Tai Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Tai Electric 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 Hong Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Tai Electric has no effect on the direction of Chung Hsin i.e., Chung Hsin and Hong Tai go up and down completely randomly.

Pair Corralation between Chung Hsin and Hong Tai

Assuming the 90 days trading horizon Chung Hsin Electric Machinery is expected to under-perform the Hong Tai. In addition to that, Chung Hsin is 1.61 times more volatile than Hong Tai Electric. It trades about -0.11 of its total potential returns per unit of risk. Hong Tai Electric is currently generating about 0.09 per unit of volatility. If you would invest  3,375  in Hong Tai Electric on September 16, 2024 and sell it today you would earn a total of  70.00  from holding Hong Tai Electric or generate 2.07% return on investment over 90 days.

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

Chung Hsin Electric Machinery  vs.  Hong Tai Electric

Chung Hsin Electric

Risk-Adjusted Performance

0 of 100

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.

Hong Tai Electric

Risk-Adjusted Performance

2 of 100

Insignificant

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

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

The idea behind Chung Hsin Electric Machinery and Hong Tai Electric 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.