Correlation Between Cheng Mei and Century Wind

Can any of the company-specific risk be diversified away by investing in both Cheng Mei and Century Wind 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 Century Wind 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 Century Wind Power, you can compare the effects of market volatilities on Cheng Mei and Century Wind 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 Century Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and Century Wind.

Diversification Opportunities for Cheng Mei and Century Wind

-0.6

Correlation Coefficient

Cheng Mei  Century Wind

Excellent diversification

The 3 months correlation between Cheng and Century is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and Century Wind Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Wind Power 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 Century Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Wind Power has no effect on the direction of Cheng Mei i.e., Cheng Mei and Century Wind go up and down completely randomly.

Pair Corralation between Cheng Mei and Century Wind

Assuming the 90 days trading horizon Cheng Mei Materials is expected to generate 0.25 times more return on investment than Century Wind. However, Cheng Mei Materials is 3.99 times less risky than Century Wind. It trades about 0.31 of its potential returns per unit of risk. Century Wind Power is currently generating about -0.13 per unit of risk. If you would invest  1,300  in Cheng Mei Materials on October 25, 2024 and sell it today you would earn a total of  85.00  from holding Cheng Mei Materials or generate 6.54% return on investment over 90 days.

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

Cheng Mei Materials  vs.  Century Wind Power

Cheng Mei Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Mei Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Mei may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Century Wind Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Wind Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cheng Mei and Century Wind

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

The idea behind Cheng Mei Materials and Century Wind Power 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.