Correlation Between Gold Rain and Wah Hong

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

By analyzing existing cross correlation between Gold Rain Enterprises and Wah Hong Industrial, you can compare the effects of market volatilities on Gold Rain and Wah Hong 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 Gold Rain with a short position of Wah Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Rain and Wah Hong.

Diversification Opportunities for Gold Rain and Wah Hong

-0.13

Correlation Coefficient

Gold Rain  Wah Hong

Good diversification

The 3 months correlation between Gold and Wah is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Gold Rain Enterprises and Wah Hong Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Hong Industrial and Gold Rain 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 Gold Rain Enterprises are associated (or correlated) with Wah Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Hong Industrial has no effect on the direction of Gold Rain i.e., Gold Rain and Wah Hong go up and down completely randomly.

Pair Corralation between Gold Rain and Wah Hong

Assuming the 90 days trading horizon Gold Rain is expected to generate 1.33 times less return on investment than Wah Hong. In addition to that, Gold Rain is 1.33 times more volatile than Wah Hong Industrial. It trades about 0.03 of its total potential returns per unit of risk. Wah Hong Industrial is currently generating about 0.06 per unit of volatility. If you would invest  2,747  in Wah Hong Industrial on September 25, 2024 and sell it today you would earn a total of  1,688  from holding Wah Hong Industrial or generate 61.45% return on investment over 90 days.

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

Gold Rain Enterprises  vs.  Wah Hong Industrial

Gold Rain Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Rain Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Gold Rain is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Wah Hong Industrial

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wah Hong Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wah Hong showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Rain and Wah Hong

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

The idea behind Gold Rain Enterprises and Wah Hong 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.