Correlation Between Chia Yi and Feng Hsin

Can any of the company-specific risk be diversified away by investing in both Chia Yi and Feng Hsin 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 Feng Hsin 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 Feng Hsin Steel, you can compare the effects of market volatilities on Chia Yi and Feng Hsin 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 Feng Hsin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chia Yi and Feng Hsin.

Diversification Opportunities for Chia Yi and Feng Hsin

-0.61

Correlation Coefficient

Chia Yi  Feng Hsin

Excellent diversification

The 3 months correlation between Chia and Feng is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Chia Yi Steel and Feng Hsin Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feng Hsin Steel 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 Feng Hsin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feng Hsin Steel has no effect on the direction of Chia Yi i.e., Chia Yi and Feng Hsin go up and down completely randomly.

Pair Corralation between Chia Yi and Feng Hsin

Assuming the 90 days trading horizon Chia Yi Steel is expected to generate 3.28 times more return on investment than Feng Hsin. However, Chia Yi is 3.28 times more volatile than Feng Hsin Steel. It trades about -0.07 of its potential returns per unit of risk. Feng Hsin Steel is currently generating about -0.35 per unit of risk. If you would invest  1,175  in Chia Yi Steel on September 19, 2024 and sell it today you would lose (70.00) from holding Chia Yi Steel or give up 5.96% of portfolio value over 90 days.

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

Chia Yi Steel  vs.  Feng Hsin Steel

Chia Yi Steel

Risk-Adjusted Performance

3 of 100

Insignificant

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

Feng Hsin Steel

Risk-Adjusted Performance

0 of 100

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Chia Yi and Feng Hsin

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

The idea behind Chia Yi Steel and Feng Hsin 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.