Correlation Between Wan Hai and Chung Hsin

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

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

Diversification Opportunities for Wan Hai and Chung Hsin

0.47

Correlation Coefficient

Wan Hai  Chung Hsin

Very weak diversification

The 3 months correlation between Wan and Chung is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Wan Hai Lines 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 Wan Hai 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 Wan Hai Lines 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 Wan Hai i.e., Wan Hai and Chung Hsin go up and down completely randomly.

Pair Corralation between Wan Hai and Chung Hsin

Assuming the 90 days trading horizon Wan Hai Lines is expected to generate 1.98 times more return on investment than Chung Hsin. However, Wan Hai is 1.98 times more volatile than Chung Hsin Electric Machinery. It trades about 0.03 of its potential returns per unit of risk. Chung Hsin Electric Machinery is currently generating about -0.04 per unit of risk. If you would invest  7,920  in Wan Hai Lines on September 13, 2024 and sell it today you would earn a total of  250.00  from holding Wan Hai Lines or generate 3.16% return on investment over 90 days.

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

Wan Hai Lines  vs.  Chung Hsin Electric Machinery

Wan Hai Lines

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wan Hai Lines are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wan Hai may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Wan Hai and Chung Hsin

The main advantage of trading using opposite Wan Hai and Chung Hsin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wan Hai 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 Wan Hai Lines 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.