Correlation Between Chung Hsin and Hsin Kuang

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

Diversification Opportunities for Chung Hsin and Hsin Kuang

0.69

Correlation Coefficient

Chung Hsin  Hsin Kuang

Poor diversification

The 3 months correlation between Chung and Hsin is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hsin Electric Machinery and Hsin Kuang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsin Kuang 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 Hsin Kuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsin Kuang Steel has no effect on the direction of Chung Hsin i.e., Chung Hsin and Hsin Kuang go up and down completely randomly.

Pair Corralation between Chung Hsin and Hsin Kuang

Assuming the 90 days trading horizon Chung Hsin Electric Machinery is expected to generate 0.81 times more return on investment than Hsin Kuang. However, Chung Hsin Electric Machinery is 1.23 times less risky than Hsin Kuang. It trades about 0.01 of its potential returns per unit of risk. Hsin Kuang Steel is currently generating about -0.28 per unit of risk. If you would invest  15,950  in Chung Hsin Electric Machinery on October 10, 2024 and sell it today you would earn a total of  0.00  from holding Chung Hsin Electric Machinery or generate 0.0% return on investment over 90 days.

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

Chung Hsin Electric Machinery  vs.  Hsin Kuang Steel

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.

Hsin Kuang Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hsin Kuang Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Chung Hsin and Hsin Kuang

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

The idea behind Chung Hsin Electric Machinery and Hsin Kuang 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.