Correlation Between China Airlines and Hua Eng

Can any of the company-specific risk be diversified away by investing in both China Airlines and Hua Eng 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 China Airlines and Hua Eng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Airlines and Hua Eng Wire, you can compare the effects of market volatilities on China Airlines and Hua Eng 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 China Airlines with a short position of Hua Eng. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Airlines and Hua Eng.

Diversification Opportunities for China Airlines and Hua Eng

-0.79

Correlation Coefficient

China Airlines  Hua Eng

Pay attention - limited upside

The 3 months correlation between China and Hua is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Airlines and Hua Eng Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Eng Wire and China Airlines 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 China Airlines are associated (or correlated) with Hua Eng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Eng Wire has no effect on the direction of China Airlines i.e., China Airlines and Hua Eng go up and down completely randomly.

Pair Corralation between China Airlines and Hua Eng

Assuming the 90 days trading horizon China Airlines is expected to generate 1.35 times more return on investment than Hua Eng. However, China Airlines is 1.35 times more volatile than Hua Eng Wire. It trades about 0.22 of its potential returns per unit of risk. Hua Eng Wire is currently generating about -0.39 per unit of risk. If you would invest  2,385  in China Airlines on September 16, 2024 and sell it today you would earn a total of  215.00  from holding China Airlines or generate 9.01% return on investment over 90 days.

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

China Airlines  vs.  Hua Eng Wire

China Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Hua Eng Wire

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hua Eng Wire 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with China Airlines and Hua Eng

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

The idea behind China Airlines and Hua Eng Wire 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.