Correlation Between IEI Integration and Chunghwa Precision

Can any of the company-specific risk be diversified away by investing in both IEI Integration and Chunghwa Precision 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 IEI Integration and Chunghwa Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IEI Integration Corp and Chunghwa Precision Test, you can compare the effects of market volatilities on IEI Integration and Chunghwa Precision 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 IEI Integration with a short position of Chunghwa Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of IEI Integration and Chunghwa Precision.

Diversification Opportunities for IEI Integration and Chunghwa Precision

0.34

Correlation Coefficient

IEI Integration  Chunghwa Precision

Weak diversification

The 3 months correlation between IEI and Chunghwa is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding IEI Integration Corp and Chunghwa Precision Test in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Precision Test and IEI Integration 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 IEI Integration Corp are associated (or correlated) with Chunghwa Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Precision Test has no effect on the direction of IEI Integration i.e., IEI Integration and Chunghwa Precision go up and down completely randomly.

Pair Corralation between IEI Integration and Chunghwa Precision

Assuming the 90 days trading horizon IEI Integration Corp is expected to under-perform the Chunghwa Precision. But the stock apears to be less risky and, when comparing its historical volatility, IEI Integration Corp is 2.14 times less risky than Chunghwa Precision. The stock trades about -0.07 of its potential returns per unit of risk. The Chunghwa Precision Test is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  74,600  in Chunghwa Precision Test on September 22, 2024 and sell it today you would earn a total of  6,800  from holding Chunghwa Precision Test or generate 9.12% return on investment over 90 days.

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

IEI Integration Corp  vs.  Chunghwa Precision Test

IEI Integration Corp

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IEI Integration Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IEI Integration is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chunghwa Precision Test

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Precision Test are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chunghwa Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IEI Integration and Chunghwa Precision

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

The idea behind IEI Integration Corp and Chunghwa Precision Test 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.