Correlation Between Chia Yi and Wei Chuan

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

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

Diversification Opportunities for Chia Yi and Wei Chuan

-0.47

Correlation Coefficient

Chia Yi  Wei Chuan

Very good diversification

The 3 months correlation between Chia and Wei is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Chia Yi Steel and Wei Chuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wei Chuan Foods and Chia Yi 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 Chia Yi Steel are associated (or correlated) with Wei Chuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wei Chuan Foods has no effect on the direction of Chia Yi i.e., Chia Yi and Wei Chuan go up and down completely randomly.

Pair Corralation between Chia Yi and Wei Chuan

Assuming the 90 days trading horizon Chia Yi Steel is expected to under-perform the Wei Chuan. In addition to that, Chia Yi is 2.82 times more volatile than Wei Chuan Foods. It trades about -0.16 of its total potential returns per unit of risk. Wei Chuan Foods is currently generating about 0.0 per unit of volatility. If you would invest  1,795  in Wei Chuan Foods on December 26, 2024 and sell it today you would earn a total of  0.00  from holding Wei Chuan Foods or generate 0.0% return on investment over 90 days.

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

Chia Yi Steel  vs.  Wei Chuan Foods

Chia Yi Steel

Risk-Adjusted Performance

Very Weak

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

Wei Chuan Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wei Chuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wei Chuan 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 Chia Yi and Wei Chuan

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

The idea behind Chia Yi Steel and Wei Chuan Foods 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.