Correlation Between Century Wind and Yung Chi

Can any of the company-specific risk be diversified away by investing in both Century Wind and Yung Chi 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 Century Wind and Yung Chi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Century Wind Power and Yung Chi Paint, you can compare the effects of market volatilities on Century Wind and Yung Chi 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 Century Wind with a short position of Yung Chi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Wind and Yung Chi.

Diversification Opportunities for Century Wind and Yung Chi

0.83

Correlation Coefficient

Century Wind  Yung Chi

Very poor diversification

The 3 months correlation between Century and Yung is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Century Wind Power and Yung Chi Paint in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yung Chi Paint and Century Wind 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 Century Wind Power are associated (or correlated) with Yung Chi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yung Chi Paint has no effect on the direction of Century Wind i.e., Century Wind and Yung Chi go up and down completely randomly.

Pair Corralation between Century Wind and Yung Chi

Assuming the 90 days trading horizon Century Wind Power is expected to generate 3.6 times more return on investment than Yung Chi. However, Century Wind is 3.6 times more volatile than Yung Chi Paint. It trades about 0.09 of its potential returns per unit of risk. Yung Chi Paint is currently generating about 0.03 per unit of risk. If you would invest  11,469  in Century Wind Power on October 7, 2024 and sell it today you would earn a total of  17,331  from holding Century Wind Power or generate 151.11% return on investment over 90 days.

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

Century Wind Power  vs.  Yung Chi Paint

Century Wind Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Wind Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Yung Chi Paint

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yung Chi Paint has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yung Chi 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 Century Wind and Yung Chi

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

The idea behind Century Wind Power and Yung Chi Paint 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.