Correlation Between Tung Ho and Sheng Yu

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

Diversification Opportunities for Tung Ho and Sheng Yu

0.85

Correlation Coefficient

Tung Ho  Sheng Yu

Very poor diversification

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

Pair Corralation between Tung Ho and Sheng Yu

Assuming the 90 days trading horizon Tung Ho is expected to generate 3.33 times less return on investment than Sheng Yu. In addition to that, Tung Ho is 1.01 times more volatile than Sheng Yu Steel. It trades about 0.04 of its total potential returns per unit of risk. Sheng Yu Steel is currently generating about 0.13 per unit of volatility. If you would invest  2,390  in Sheng Yu Steel on December 29, 2024 and sell it today you would earn a total of  250.00  from holding Sheng Yu Steel or generate 10.46% 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.  Sheng Yu Steel

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.

Sheng Yu Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sheng Yu Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sheng Yu may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tung Ho and Sheng Yu

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

The idea behind Tung Ho Steel and Sheng Yu 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.