Correlation Between Wan Hai and U Ming

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

Diversification Opportunities for Wan Hai and U Ming

0.47

Correlation Coefficient

Wan Hai  U Ming

Very weak diversification

The 3 months correlation between Wan and 2606 is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Wan Hai Lines and U Ming Marine Transport in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on U Ming Marine 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 U Ming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of U Ming Marine has no effect on the direction of Wan Hai i.e., Wan Hai and U Ming go up and down completely randomly.

Pair Corralation between Wan Hai and U Ming

Assuming the 90 days trading horizon Wan Hai is expected to generate 1.05 times less return on investment than U Ming. In addition to that, Wan Hai is 2.75 times more volatile than U Ming Marine Transport. It trades about 0.06 of its total potential returns per unit of risk. U Ming Marine Transport is currently generating about 0.16 per unit of volatility. If you would invest  5,120  in U Ming Marine Transport on September 12, 2024 and sell it today you would earn a total of  670.00  from holding U Ming Marine Transport or generate 13.09% 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.  U Ming Marine Transport

Wan Hai Lines

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wan Hai Lines are ranked lower than 4 (%) 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.

U Ming Marine

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in U Ming Marine Transport are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, U Ming showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wan Hai and U Ming

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

The idea behind Wan Hai Lines and U Ming Marine Transport 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.