Correlation Between Hung Sheng and Chien Kuo

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

By analyzing existing cross correlation between Hung Sheng Construction and Chien Kuo Construction, you can compare the effects of market volatilities on Hung Sheng and Chien Kuo 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 Hung Sheng with a short position of Chien Kuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hung Sheng and Chien Kuo.

Diversification Opportunities for Hung Sheng and Chien Kuo

0.61

Correlation Coefficient

Hung Sheng  Chien Kuo

Poor diversification

The 3 months correlation between Hung and Chien is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Hung Sheng Construction and Chien Kuo Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chien Kuo Construction and Hung Sheng 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 Hung Sheng Construction are associated (or correlated) with Chien Kuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chien Kuo Construction has no effect on the direction of Hung Sheng i.e., Hung Sheng and Chien Kuo go up and down completely randomly.

Pair Corralation between Hung Sheng and Chien Kuo

Assuming the 90 days trading horizon Hung Sheng is expected to generate 18.41 times less return on investment than Chien Kuo. But when comparing it to its historical volatility, Hung Sheng Construction is 2.48 times less risky than Chien Kuo. It trades about 0.02 of its potential returns per unit of risk. Chien Kuo Construction is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,230  in Chien Kuo Construction on September 16, 2024 and sell it today you would earn a total of  555.00  from holding Chien Kuo Construction or generate 24.89% return on investment over 90 days.

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

Hung Sheng Construction  vs.  Chien Kuo Construction

Hung Sheng Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hung Sheng Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hung Sheng is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chien Kuo Construction

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chien Kuo Construction are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chien Kuo showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hung Sheng and Chien Kuo

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

The idea behind Hung Sheng Construction and Chien Kuo Construction 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.