Correlation Between Lotes and Tong Hsing

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

By analyzing existing cross correlation between Lotes Co and Tong Hsing Electronic, you can compare the effects of market volatilities on Lotes and Tong Hsing 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 Lotes with a short position of Tong Hsing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotes and Tong Hsing.

Diversification Opportunities for Lotes and Tong Hsing

-0.5

Correlation Coefficient

Lotes  Tong Hsing

Very good diversification

The 3 months correlation between Lotes and Tong is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Lotes Co and Tong Hsing Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Hsing Electronic and Lotes 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 Lotes Co are associated (or correlated) with Tong Hsing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Hsing Electronic has no effect on the direction of Lotes i.e., Lotes and Tong Hsing go up and down completely randomly.

Pair Corralation between Lotes and Tong Hsing

Assuming the 90 days trading horizon Lotes Co is expected to generate 1.91 times more return on investment than Tong Hsing. However, Lotes is 1.91 times more volatile than Tong Hsing Electronic. It trades about 0.18 of its potential returns per unit of risk. Tong Hsing Electronic is currently generating about -0.03 per unit of risk. If you would invest  140,500  in Lotes Co on September 13, 2024 and sell it today you would earn a total of  54,000  from holding Lotes Co or generate 38.43% return on investment over 90 days.

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

Lotes Co  vs.  Tong Hsing Electronic

Lotes

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lotes Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lotes showed solid returns over the last few months and may actually be approaching a breakup point.

Tong Hsing Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tong Hsing Electronic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Tong Hsing 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 Lotes and Tong Hsing

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

The idea behind Lotes Co and Tong Hsing Electronic 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.