Correlation Between Chung Hsin and United Integrated

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

Diversification Opportunities for Chung Hsin and United Integrated

-0.66

Correlation Coefficient

Chung Hsin  United Integrated

Excellent diversification

The 3 months correlation between Chung and United is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hsin Electric Machinery and United Integrated Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Integrated 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 United Integrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Integrated has no effect on the direction of Chung Hsin i.e., Chung Hsin and United Integrated go up and down completely randomly.

Pair Corralation between Chung Hsin and United Integrated

Assuming the 90 days trading horizon Chung Hsin Electric Machinery is expected to under-perform the United Integrated. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hsin Electric Machinery is 1.03 times less risky than United Integrated. The stock trades about -0.05 of its potential returns per unit of risk. The United Integrated Services is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  32,050  in United Integrated Services on September 15, 2024 and sell it today you would earn a total of  14,250  from holding United Integrated Services or generate 44.46% return on investment over 90 days.

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

Chung Hsin Electric Machinery  vs.  United Integrated Services

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.

United Integrated

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Integrated Services are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, United Integrated showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Hsin and United Integrated

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

The idea behind Chung Hsin Electric Machinery and United Integrated Services 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.