Correlation Between Wei Chih and Asia Metal

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

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

Diversification Opportunities for Wei Chih and Asia Metal

0.03

Correlation Coefficient

Wei Chih  Asia Metal

Significant diversification

The 3 months correlation between Wei and Asia is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chih Steel and Asia Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Metal Industries and Wei Chih 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 Wei Chih Steel are associated (or correlated) with Asia Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Metal Industries has no effect on the direction of Wei Chih i.e., Wei Chih and Asia Metal go up and down completely randomly.

Pair Corralation between Wei Chih and Asia Metal

Assuming the 90 days trading horizon Wei Chih Steel is expected to under-perform the Asia Metal. But the stock apears to be less risky and, when comparing its historical volatility, Wei Chih Steel is 1.09 times less risky than Asia Metal. The stock trades about -0.03 of its potential returns per unit of risk. The Asia Metal Industries is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,660  in Asia Metal Industries on October 14, 2024 and sell it today you would earn a total of  2,510  from holding Asia Metal Industries or generate 44.35% return on investment over 90 days.

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

Wei Chih Steel  vs.  Asia Metal Industries

Wei Chih Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wei Chih Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Asia Metal Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Metal Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Metal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Wei Chih and Asia Metal

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

The idea behind Wei Chih Steel and Asia Metal Industries 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.