Correlation Between Cheng Uei and China Airlines

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

By analyzing existing cross correlation between Cheng Uei Precision and China Airlines, you can compare the effects of market volatilities on Cheng Uei and China Airlines 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 Cheng Uei with a short position of China Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Uei and China Airlines.

Diversification Opportunities for Cheng Uei and China Airlines

0.36

Correlation Coefficient

Cheng Uei  China Airlines

Weak diversification

The 3 months correlation between Cheng and China is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Uei Precision and China Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Airlines and Cheng Uei 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 Cheng Uei Precision are associated (or correlated) with China Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Airlines has no effect on the direction of Cheng Uei i.e., Cheng Uei and China Airlines go up and down completely randomly.

Pair Corralation between Cheng Uei and China Airlines

Assuming the 90 days trading horizon Cheng Uei Precision is expected to under-perform the China Airlines. In addition to that, Cheng Uei is 1.22 times more volatile than China Airlines. It trades about -0.16 of its total potential returns per unit of risk. China Airlines is currently generating about -0.09 per unit of volatility. If you would invest  2,640  in China Airlines on December 22, 2024 and sell it today you would lose (195.00) from holding China Airlines or give up 7.39% of portfolio value over 90 days.

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

Cheng Uei Precision  vs.  China Airlines

Cheng Uei Precision

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheng Uei Precision has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

China Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

Pair Trading with Cheng Uei and China Airlines

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

The idea behind Cheng Uei Precision and China Airlines 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.