Correlation Between Yang Ming and Chien Kuo

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

Diversification Opportunities for Yang Ming and Chien Kuo

0.75

Correlation Coefficient

Yang Ming  Chien Kuo

Poor diversification

The 3 months correlation between Yang and Chien is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Yang Ming Marine 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 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 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 Yang Ming i.e., Yang Ming and Chien Kuo go up and down completely randomly.

Pair Corralation between Yang Ming and Chien Kuo

Assuming the 90 days trading horizon Yang Ming Marine is expected to generate 1.88 times more return on investment than Chien Kuo. However, Yang Ming is 1.88 times more volatile than Chien Kuo Construction. It trades about 0.06 of its potential returns per unit of risk. Chien Kuo Construction is currently generating about 0.0 per unit of risk. If you would invest  7,650  in Yang Ming Marine on September 24, 2024 and sell it today you would earn a total of  240.00  from holding Yang Ming Marine or generate 3.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Yang Ming Marine  vs.  Chien Kuo Construction

Yang Ming Marine

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yang Ming Marine are ranked lower than 8 (%) 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.

Chien Kuo Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chien Kuo Construction are ranked lower than 10 (%) 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 Yang Ming and Chien Kuo

The main advantage of trading using opposite Yang Ming and Chien Kuo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yang Ming 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 Yang Ming Marine 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.