Correlation Between Shin Kong and Long Bon

Can any of the company-specific risk be diversified away by investing in both Shin Kong and Long Bon 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 Shin Kong and Long Bon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shin Kong Financial and Long Bon International, you can compare the effects of market volatilities on Shin Kong and Long Bon 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 Shin Kong with a short position of Long Bon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Kong and Long Bon.

Diversification Opportunities for Shin Kong and Long Bon

0.58

Correlation Coefficient

Shin Kong  Long Bon

Very weak diversification

The 3 months correlation between Shin and Long is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Shin Kong Financial and Long Bon International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Bon International and Shin Kong 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 Shin Kong Financial are associated (or correlated) with Long Bon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Bon International has no effect on the direction of Shin Kong i.e., Shin Kong and Long Bon go up and down completely randomly.

Pair Corralation between Shin Kong and Long Bon

Assuming the 90 days trading horizon Shin Kong Financial is expected to generate 0.35 times more return on investment than Long Bon. However, Shin Kong Financial is 2.84 times less risky than Long Bon. It trades about 0.22 of its potential returns per unit of risk. Long Bon International is currently generating about 0.0 per unit of risk. If you would invest  1,185  in Shin Kong Financial on December 28, 2024 and sell it today you would earn a total of  80.00  from holding Shin Kong Financial or generate 6.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.21%
Values	Daily Returns

Shin Kong Financial  vs.  Long Bon International

Shin Kong Financial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shin Kong Financial are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Shin Kong may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Long Bon International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Long Bon International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Long Bon 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 Shin Kong and Long Bon

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

The idea behind Shin Kong Financial and Long Bon International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.