Correlation Between Shin Zu and Cheng Fwa

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

By analyzing existing cross correlation between Shin Zu Shing and Cheng Fwa Industrial, you can compare the effects of market volatilities on Shin Zu and Cheng Fwa 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 Zu with a short position of Cheng Fwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Zu and Cheng Fwa.

Diversification Opportunities for Shin Zu and Cheng Fwa

0.33

Correlation Coefficient

Shin Zu  Cheng Fwa

Weak diversification

The 3 months correlation between Shin and Cheng is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Shin Zu Shing and Cheng Fwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Fwa Industrial and Shin Zu 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 Zu Shing are associated (or correlated) with Cheng Fwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Fwa Industrial has no effect on the direction of Shin Zu i.e., Shin Zu and Cheng Fwa go up and down completely randomly.

Pair Corralation between Shin Zu and Cheng Fwa

Assuming the 90 days trading horizon Shin Zu Shing is expected to generate 2.64 times more return on investment than Cheng Fwa. However, Shin Zu is 2.64 times more volatile than Cheng Fwa Industrial. It trades about 0.32 of its potential returns per unit of risk. Cheng Fwa Industrial is currently generating about 0.29 per unit of risk. If you would invest  21,750  in Shin Zu Shing on December 4, 2024 and sell it today you would earn a total of  5,900  from holding Shin Zu Shing or generate 27.13% return on investment over 90 days.

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

Shin Zu Shing  vs.  Cheng Fwa Industrial

Shin Zu Shing

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shin Zu Shing are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Shin Zu showed solid returns over the last few months and may actually be approaching a breakup point.

Cheng Fwa Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheng Fwa Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cheng Fwa 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 Zu and Cheng Fwa

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

The idea behind Shin Zu Shing and Cheng Fwa Industrial 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.