Correlation Between Chung Hsin and Tung Ho

Can any of the company-specific risk be diversified away by investing in both Chung Hsin and Tung Ho 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 Tung Ho 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 Tung Ho Steel, you can compare the effects of market volatilities on Chung Hsin and Tung Ho 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 Tung Ho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hsin and Tung Ho.

Diversification Opportunities for Chung Hsin and Tung Ho

-0.4

Correlation Coefficient

Chung Hsin  Tung Ho

Very good diversification

The 3 months correlation between Chung and Tung is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hsin Electric Machinery and Tung Ho Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tung Ho Steel 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 Tung Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tung Ho Steel has no effect on the direction of Chung Hsin i.e., Chung Hsin and Tung Ho go up and down completely randomly.

Pair Corralation between Chung Hsin and Tung Ho

Assuming the 90 days trading horizon Chung Hsin Electric Machinery is expected to under-perform the Tung Ho. In addition to that, Chung Hsin is 1.27 times more volatile than Tung Ho Steel. It trades about -0.03 of its total potential returns per unit of risk. Tung Ho Steel is currently generating about 0.04 per unit of volatility. If you would invest  6,930  in Tung Ho Steel on December 21, 2024 and sell it today you would earn a total of  200.00  from holding Tung Ho Steel or generate 2.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.21%
Values	Daily Returns

Chung Hsin Electric Machinery  vs.  Tung Ho Steel

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.

Tung Ho Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tung Ho Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Tung Ho 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 Tung Ho

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

The idea behind Chung Hsin Electric Machinery and Tung Ho 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.