Correlation Between Evergreen Steel and Cheng Fwa

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

By analyzing existing cross correlation between Evergreen Steel Corp and Cheng Fwa Industrial, you can compare the effects of market volatilities on Evergreen Steel and Cheng Fwa 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 Evergreen Steel with a short position of Cheng Fwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evergreen Steel and Cheng Fwa.

Diversification Opportunities for Evergreen Steel and Cheng Fwa

-0.59

Correlation Coefficient

Evergreen Steel  Cheng Fwa

Excellent diversification

The 3 months correlation between Evergreen and Cheng is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Evergreen Steel Corp and Cheng Fwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Fwa Industrial and Evergreen Steel 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 Evergreen Steel Corp are associated (or correlated) with Cheng Fwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Fwa Industrial has no effect on the direction of Evergreen Steel i.e., Evergreen Steel and Cheng Fwa go up and down completely randomly.

Pair Corralation between Evergreen Steel and Cheng Fwa

Assuming the 90 days trading horizon Evergreen Steel Corp is expected to under-perform the Cheng Fwa. But the stock apears to be less risky and, when comparing its historical volatility, Evergreen Steel Corp is 2.11 times less risky than Cheng Fwa. The stock trades about -0.12 of its potential returns per unit of risk. The Cheng Fwa Industrial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,710  in Cheng Fwa Industrial on September 15, 2024 and sell it today you would earn a total of  520.00  from holding Cheng Fwa Industrial or generate 19.19% return on investment over 90 days.

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

Evergreen Steel Corp  vs.  Cheng Fwa Industrial

Evergreen Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evergreen Steel Corp 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.

Cheng Fwa Industrial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Fwa Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Fwa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evergreen Steel and Cheng Fwa

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

The idea behind Evergreen Steel Corp and Cheng Fwa 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.