Correlation Between Tung Ho and Chumpower Machinery

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

Diversification Opportunities for Tung Ho and Chumpower Machinery

-0.37

Correlation Coefficient

Tung Ho  Chumpower Machinery

Very good diversification

The 3 months correlation between Tung and Chumpower is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Tung Ho Steel and Chumpower Machinery Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chumpower Machinery Corp 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 Chumpower Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chumpower Machinery Corp has no effect on the direction of Tung Ho i.e., Tung Ho and Chumpower Machinery go up and down completely randomly.

Pair Corralation between Tung Ho and Chumpower Machinery

Assuming the 90 days trading horizon Tung Ho Steel is expected to under-perform the Chumpower Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Tung Ho Steel is 1.4 times less risky than Chumpower Machinery. The stock trades about -0.05 of its potential returns per unit of risk. The Chumpower Machinery Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,185  in Chumpower Machinery Corp on October 25, 2024 and sell it today you would earn a total of  130.00  from holding Chumpower Machinery Corp or generate 5.95% return on investment over 90 days.

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

Tung Ho Steel  vs.  Chumpower Machinery Corp

Tung Ho Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tung Ho Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Chumpower Machinery Corp

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chumpower Machinery Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Chumpower Machinery 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 Chumpower Machinery

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

The idea behind Tung Ho Steel and Chumpower Machinery Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.