Correlation Between China Airlines and Silicon Power

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

By analyzing existing cross correlation between China Airlines and Silicon Power Computer, you can compare the effects of market volatilities on China Airlines and Silicon Power 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 Silicon Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Airlines and Silicon Power.

Diversification Opportunities for China Airlines and Silicon Power

0.04

Correlation Coefficient

China Airlines  Silicon Power

Significant diversification

The 3 months correlation between China and Silicon is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Airlines and Silicon Power Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Power Computer 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 Silicon Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Power Computer has no effect on the direction of China Airlines i.e., China Airlines and Silicon Power go up and down completely randomly.

Pair Corralation between China Airlines and Silicon Power

Assuming the 90 days trading horizon China Airlines is expected to generate 0.88 times more return on investment than Silicon Power. However, China Airlines is 1.14 times less risky than Silicon Power. It trades about 0.26 of its potential returns per unit of risk. Silicon Power Computer is currently generating about 0.01 per unit of risk. If you would invest  2,060  in China Airlines on October 10, 2024 and sell it today you would earn a total of  540.00  from holding China Airlines or generate 26.21% return on investment over 90 days.

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

China Airlines  vs.  Silicon Power Computer

China Airlines

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 20 (%) 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.

Silicon Power Computer

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Power Computer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Silicon Power 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 China Airlines and Silicon Power

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

The idea behind China Airlines and Silicon Power Computer 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.