Correlation Between Cheng Uei and Arima Communications

Can any of the company-specific risk be diversified away by investing in both Cheng Uei and Arima Communications 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 Arima Communications 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 Arima Communications Corp, you can compare the effects of market volatilities on Cheng Uei and Arima Communications 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 Arima Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Uei and Arima Communications.

Diversification Opportunities for Cheng Uei and Arima Communications

-0.29

Correlation Coefficient

Cheng Uei  Arima Communications

Very good diversification

The 3 months correlation between Cheng and Arima is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Uei Precision and Arima Communications Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arima Communications Corp 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 Arima Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arima Communications Corp has no effect on the direction of Cheng Uei i.e., Cheng Uei and Arima Communications go up and down completely randomly.

Pair Corralation between Cheng Uei and Arima Communications

Assuming the 90 days trading horizon Cheng Uei Precision is expected to under-perform the Arima Communications. But the stock apears to be less risky and, when comparing its historical volatility, Cheng Uei Precision is 1.86 times less risky than Arima Communications. The stock trades about -0.19 of its potential returns per unit of risk. The Arima Communications Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,925  in Arima Communications Corp on December 29, 2024 and sell it today you would lose (90.00) from holding Arima Communications Corp or give up 4.68% of portfolio value over 90 days.

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

Cheng Uei Precision  vs.  Arima Communications Corp

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 abnormal 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.

Arima Communications Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arima Communications Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arima Communications 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 Cheng Uei and Arima Communications

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

The idea behind Cheng Uei Precision and Arima Communications Corp 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.