Correlation Between Feng Hsin and Sheng Yu

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

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

Diversification Opportunities for Feng Hsin and Sheng Yu

0.57

Correlation Coefficient

Feng Hsin  Sheng Yu

Very weak diversification

The 3 months correlation between Feng and Sheng is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Feng Hsin 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 Feng Hsin 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 Feng Hsin 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 Feng Hsin i.e., Feng Hsin and Sheng Yu go up and down completely randomly.

Pair Corralation between Feng Hsin and Sheng Yu

Assuming the 90 days trading horizon Feng Hsin Steel is expected to under-perform the Sheng Yu. In addition to that, Feng Hsin is 1.09 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 0.07 per unit of volatility. If you would invest  2,480  in Sheng Yu Steel on December 4, 2024 and sell it today you would earn a total of  100.00  from holding Sheng Yu Steel or generate 4.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.21%
Values	Daily Returns

Feng Hsin Steel  vs.  Sheng Yu Steel

Feng Hsin Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Feng Hsin Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Feng Hsin 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

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sheng Yu Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Sheng Yu 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 Feng Hsin and Sheng Yu

The main advantage of trading using opposite Feng Hsin and Sheng Yu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Feng Hsin 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 Feng Hsin 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.