Correlation Between Cheng Mei and Union Insurance

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

Diversification Opportunities for Cheng Mei and Union Insurance

0.57

Correlation Coefficient

Cheng Mei  Union Insurance

Very weak diversification

The 3 months correlation between Cheng and Union is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and Union Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Insurance 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 Union Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Insurance has no effect on the direction of Cheng Mei i.e., Cheng Mei and Union Insurance go up and down completely randomly.

Pair Corralation between Cheng Mei and Union Insurance

Assuming the 90 days trading horizon Cheng Mei Materials is expected to under-perform the Union Insurance. In addition to that, Cheng Mei is 1.36 times more volatile than Union Insurance Co. It trades about -0.03 of its total potential returns per unit of risk. Union Insurance Co is currently generating about 0.02 per unit of volatility. If you would invest  3,150  in Union Insurance Co on December 29, 2024 and sell it today you would earn a total of  30.00  from holding Union Insurance Co or generate 0.95% return on investment over 90 days.

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

Cheng Mei Materials  vs.  Union Insurance Co

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.

Union Insurance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Union Insurance Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Union Insurance 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 Cheng Mei and Union Insurance

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

The idea behind Cheng Mei Materials and Union Insurance Co 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.