Correlation Between Yang Ming and Chung Hsin

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

By analyzing existing cross correlation between Yang Ming Marine and Chung Hsin Electric Machinery, you can compare the effects of market volatilities on Yang Ming and Chung Hsin 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 Yang Ming with a short position of Chung Hsin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yang Ming and Chung Hsin.

Diversification Opportunities for Yang Ming and Chung Hsin

-0.19

Correlation Coefficient

Yang Ming  Chung Hsin

Good diversification

The 3 months correlation between Yang and Chung is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Yang Ming Marine and Chung Hsin Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hsin Electric and Yang Ming 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 Yang Ming Marine are associated (or correlated) with Chung Hsin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hsin Electric has no effect on the direction of Yang Ming i.e., Yang Ming and Chung Hsin go up and down completely randomly.

Pair Corralation between Yang Ming and Chung Hsin

Assuming the 90 days trading horizon Yang Ming Marine is expected to generate 1.53 times more return on investment than Chung Hsin. However, Yang Ming is 1.53 times more volatile than Chung Hsin Electric Machinery. It trades about 0.16 of its potential returns per unit of risk. Chung Hsin Electric Machinery is currently generating about -0.03 per unit of risk. If you would invest  6,200  in Yang Ming Marine on September 12, 2024 and sell it today you would earn a total of  1,720  from holding Yang Ming Marine or generate 27.74% return on investment over 90 days.

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

Yang Ming Marine  vs.  Chung Hsin Electric Machinery

Yang Ming Marine

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yang Ming Marine are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yang Ming showed solid returns over the last few months and may actually be approaching a breakup point.

Chung Hsin Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Hsin Electric Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chung Hsin 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 Yang Ming and Chung Hsin

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

The idea behind Yang Ming Marine and Chung Hsin Electric Machinery 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.