Correlation Between Hsin Kuang and Chun Yuan

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

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

Diversification Opportunities for Hsin Kuang and Chun Yuan

0.85

Correlation Coefficient

Hsin Kuang  Chun Yuan

Very poor diversification

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

Pair Corralation between Hsin Kuang and Chun Yuan

Assuming the 90 days trading horizon Hsin Kuang Steel is expected to generate 1.41 times more return on investment than Chun Yuan. However, Hsin Kuang is 1.41 times more volatile than Chun Yuan Steel. It trades about 0.03 of its potential returns per unit of risk. Chun Yuan Steel is currently generating about 0.03 per unit of risk. If you would invest  4,475  in Hsin Kuang Steel on December 4, 2024 and sell it today you would earn a total of  725.00  from holding Hsin Kuang Steel or generate 16.2% return on investment over 90 days.

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

Hsin Kuang Steel  vs.  Chun Yuan Steel

Hsin Kuang Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hsin Kuang Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hsin Kuang may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Chun Yuan Steel

Risk-Adjusted Performance

Insignificant

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

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

The idea behind Hsin Kuang Steel and Chun Yuan 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.