Correlation Between Yang Ming and InnoDisk

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

Diversification Opportunities for Yang Ming and InnoDisk

-0.02

Correlation Coefficient

Yang Ming  InnoDisk

Good diversification

The 3 months correlation between Yang and InnoDisk is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Yang Ming Marine and InnoDisk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnoDisk 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 InnoDisk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnoDisk has no effect on the direction of Yang Ming i.e., Yang Ming and InnoDisk go up and down completely randomly.

Pair Corralation between Yang Ming and InnoDisk

Assuming the 90 days trading horizon Yang Ming Marine is expected to under-perform the InnoDisk. But the stock apears to be less risky and, when comparing its historical volatility, Yang Ming Marine is 1.7 times less risky than InnoDisk. The stock trades about -0.02 of its potential returns per unit of risk. The InnoDisk is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  21,800  in InnoDisk on December 24, 2024 and sell it today you would earn a total of  5,250  from holding InnoDisk or generate 24.08% 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.  InnoDisk

Yang Ming Marine

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yang Ming Marine has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yang Ming is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

InnoDisk

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InnoDisk are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, InnoDisk showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yang Ming and InnoDisk

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

The idea behind Yang Ming Marine and InnoDisk 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.