Correlation Between Century Wind and Wah Lee

Can any of the company-specific risk be diversified away by investing in both Century Wind and Wah Lee 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 Wah Lee 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 Wah Lee Industrial, you can compare the effects of market volatilities on Century Wind and Wah Lee 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 Wah Lee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Wind and Wah Lee.

Diversification Opportunities for Century Wind and Wah Lee

0.34

Correlation Coefficient

Century Wind  Wah Lee

Weak diversification

The 3 months correlation between Century and Wah is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Century Wind Power and Wah Lee Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Lee Industrial 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 Wah Lee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Lee Industrial has no effect on the direction of Century Wind i.e., Century Wind and Wah Lee go up and down completely randomly.

Pair Corralation between Century Wind and Wah Lee

Assuming the 90 days trading horizon Century Wind Power is expected to under-perform the Wah Lee. In addition to that, Century Wind is 1.03 times more volatile than Wah Lee Industrial. It trades about -0.1 of its total potential returns per unit of risk. Wah Lee Industrial is currently generating about -0.04 per unit of volatility. If you would invest  14,700  in Wah Lee Industrial on September 30, 2024 and sell it today you would lose (2,100) from holding Wah Lee Industrial or give up 14.29% of portfolio value over 90 days.

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

Century Wind Power  vs.  Wah Lee Industrial

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 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.

Wah Lee Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wah Lee Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wah Lee 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 Wah Lee

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

The idea behind Century Wind Power and Wah Lee Industrial 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.