Correlation Between Tung Ho and Wei Chih

Can any of the company-specific risk be diversified away by investing in both Tung Ho and Wei Chih 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 Tung Ho and Wei Chih into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tung Ho Steel and Wei Chih Steel, you can compare the effects of market volatilities on Tung Ho and Wei Chih 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 Tung Ho with a short position of Wei Chih. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tung Ho and Wei Chih.

Diversification Opportunities for Tung Ho and Wei Chih

0.85

Correlation Coefficient

Tung Ho  Wei Chih

Very poor diversification

The 3 months correlation between Tung and Wei is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Tung Ho Steel and Wei Chih Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wei Chih Steel and Tung Ho 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 Tung Ho Steel are associated (or correlated) with Wei Chih. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wei Chih Steel has no effect on the direction of Tung Ho i.e., Tung Ho and Wei Chih go up and down completely randomly.

Pair Corralation between Tung Ho and Wei Chih

Assuming the 90 days trading horizon Tung Ho is expected to generate 1.34 times less return on investment than Wei Chih. But when comparing it to its historical volatility, Tung Ho Steel is 1.57 times less risky than Wei Chih. It trades about 0.08 of its potential returns per unit of risk. Wei Chih Steel is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,090  in Wei Chih Steel on December 28, 2024 and sell it today you would earn a total of  145.00  from holding Wei Chih Steel or generate 6.94% return on investment over 90 days.

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

Tung Ho Steel  vs.  Wei Chih Steel

Tung Ho Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tung Ho Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tung Ho may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Wei Chih Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wei Chih Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wei Chih may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tung Ho and Wei Chih

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

The idea behind Tung Ho Steel and Wei Chih 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.