Correlation Between Tung Ho and Hsin Kuang

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

Diversification Opportunities for Tung Ho and Hsin Kuang

0.9

Correlation Coefficient

Tung Ho  Hsin Kuang

Almost no diversification

The 3 months correlation between Tung and Hsin is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tung Ho Steel 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 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 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 Tung Ho i.e., Tung Ho and Hsin Kuang go up and down completely randomly.

Pair Corralation between Tung Ho and Hsin Kuang

Assuming the 90 days trading horizon Tung Ho is expected to generate 1.71 times less return on investment than Hsin Kuang. But when comparing it to its historical volatility, Tung Ho Steel is 1.46 times less risky than Hsin Kuang. It trades about 0.04 of its potential returns per unit of risk. Hsin Kuang Steel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,630  in Hsin Kuang Steel on December 29, 2024 and sell it today you would earn a total of  200.00  from holding Hsin Kuang Steel or generate 4.32% return on investment over 90 days.

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

Tung Ho Steel  vs.  Hsin Kuang 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 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.

Hsin Kuang Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hsin Kuang Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hsin Kuang 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 Tung Ho and Hsin Kuang

The main advantage of trading using opposite Tung Ho and Hsin Kuang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tung Ho 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 Tung Ho Steel 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.