Correlation Between Hua Eng and Chung Hsin

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

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

Diversification Opportunities for Hua Eng and Chung Hsin

-0.07

Correlation Coefficient

Hua Eng  Chung Hsin

Good diversification

The 3 months correlation between Hua and Chung is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Hua Eng Wire and Chung Hsin Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hsin Electric and Hua Eng 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 Hua Eng Wire are associated (or correlated) with Chung Hsin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hsin Electric has no effect on the direction of Hua Eng i.e., Hua Eng and Chung Hsin go up and down completely randomly.

Pair Corralation between Hua Eng and Chung Hsin

Assuming the 90 days trading horizon Hua Eng Wire is expected to generate 1.38 times more return on investment than Chung Hsin. However, Hua Eng is 1.38 times more volatile than Chung Hsin Electric Machinery. It trades about 0.08 of its potential returns per unit of risk. Chung Hsin Electric Machinery is currently generating about -0.01 per unit of risk. If you would invest  2,635  in Hua Eng Wire on December 26, 2024 and sell it today you would earn a total of  270.00  from holding Hua Eng Wire or generate 10.25% return on investment over 90 days.

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

Hua Eng Wire  vs.  Chung Hsin Electric Machinery

Hua Eng Wire

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Eng Wire are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hua Eng showed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Hua Eng and Chung Hsin

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

The idea behind Hua Eng Wire and Chung Hsin Electric Machinery 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.