Correlation Between Cheng Mei and Feng Ching

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

By analyzing existing cross correlation between Cheng Mei Materials and Feng Ching Metal, you can compare the effects of market volatilities on Cheng Mei and Feng Ching 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 Cheng Mei with a short position of Feng Ching. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and Feng Ching.

Diversification Opportunities for Cheng Mei and Feng Ching

0.34

Correlation Coefficient

Cheng Mei  Feng Ching

Weak diversification

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

Pair Corralation between Cheng Mei and Feng Ching

Assuming the 90 days trading horizon Cheng Mei Materials is expected to under-perform the Feng Ching. But the stock apears to be less risky and, when comparing its historical volatility, Cheng Mei Materials is 2.3 times less risky than Feng Ching. The stock trades about -0.03 of its potential returns per unit of risk. The Feng Ching Metal is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,820  in Feng Ching Metal on December 29, 2024 and sell it today you would earn a total of  390.00  from holding Feng Ching Metal or generate 21.43% return on investment over 90 days.

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

Cheng Mei Materials  vs.  Feng Ching Metal

Cheng Mei Materials

Risk-Adjusted Performance

Very Weak

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

Feng Ching Metal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Feng Ching Metal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Feng Ching showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheng Mei and Feng Ching

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

The idea behind Cheng Mei Materials and Feng Ching Metal 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.