Correlation Between Wan Hai and New Asia

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

Diversification Opportunities for Wan Hai and New Asia

0.08

Correlation Coefficient

Wan Hai  New Asia

Significant diversification

The 3 months correlation between Wan and New is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Wan Hai Lines and New Asia Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Asia Construction 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 New Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Asia Construction has no effect on the direction of Wan Hai i.e., Wan Hai and New Asia go up and down completely randomly.

Pair Corralation between Wan Hai and New Asia

Assuming the 90 days trading horizon Wan Hai is expected to generate 4.51 times less return on investment than New Asia. In addition to that, Wan Hai is 2.44 times more volatile than New Asia Construction. It trades about 0.01 of its total potential returns per unit of risk. New Asia Construction is currently generating about 0.13 per unit of volatility. If you would invest  1,175  in New Asia Construction on September 17, 2024 and sell it today you would earn a total of  145.00  from holding New Asia Construction or generate 12.34% return on investment over 90 days.

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

Wan Hai Lines  vs.  New Asia Construction

Wan Hai Lines

Risk-Adjusted Performance

0 of 100

Very Weak

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

New Asia Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Asia Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, New Asia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wan Hai and New Asia

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

The idea behind Wan Hai Lines and New Asia 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.