Correlation Between Hotai and Cheng Shin

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

By analyzing existing cross correlation between Hotai Motor Co and Cheng Shin Rubber, you can compare the effects of market volatilities on Hotai and Cheng Shin 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 Hotai with a short position of Cheng Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hotai and Cheng Shin.

Diversification Opportunities for Hotai and Cheng Shin

-0.03

Correlation Coefficient

Hotai  Cheng Shin

Good diversification

The 3 months correlation between Hotai and Cheng is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Hotai Motor Co and Cheng Shin Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Shin Rubber and Hotai 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 Hotai Motor Co are associated (or correlated) with Cheng Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Shin Rubber has no effect on the direction of Hotai i.e., Hotai and Cheng Shin go up and down completely randomly.

Pair Corralation between Hotai and Cheng Shin

Assuming the 90 days trading horizon Hotai Motor Co is expected to under-perform the Cheng Shin. But the stock apears to be less risky and, when comparing its historical volatility, Hotai Motor Co is 1.59 times less risky than Cheng Shin. The stock trades about -0.05 of its potential returns per unit of risk. The Cheng Shin Rubber is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,875  in Cheng Shin Rubber on September 16, 2024 and sell it today you would earn a total of  135.00  from holding Cheng Shin Rubber or generate 2.77% return on investment over 90 days.

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

Hotai Motor Co  vs.  Cheng Shin Rubber

Hotai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotai Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hotai is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cheng Shin Rubber

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Shin Rubber are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Cheng Shin 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 Hotai and Cheng Shin

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

The idea behind Hotai Motor Co and Cheng Shin Rubber 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.