Correlation Between Cheng Mei and SS Healthcare

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

Diversification Opportunities for Cheng Mei and SS Healthcare

-0.03

Correlation Coefficient

Cheng Mei  SS Healthcare

Good diversification

The 3 months correlation between Cheng and 4198 is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and SS Healthcare Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SS Healthcare Holding 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 SS Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SS Healthcare Holding has no effect on the direction of Cheng Mei i.e., Cheng Mei and SS Healthcare go up and down completely randomly.

Pair Corralation between Cheng Mei and SS Healthcare

Assuming the 90 days trading horizon Cheng Mei Materials is expected to under-perform the SS Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Cheng Mei Materials is 2.71 times less risky than SS Healthcare. The stock trades about -0.05 of its potential returns per unit of risk. The SS Healthcare Holding is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,240  in SS Healthcare Holding on September 14, 2024 and sell it today you would lose (150.00) from holding SS Healthcare Holding or give up 4.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Cheng Mei Materials  vs.  SS Healthcare Holding

Cheng Mei Materials

Risk-Adjusted Performance

0 of 100

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.

SS Healthcare Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SS Healthcare Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SS Healthcare 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 SS Healthcare

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

The idea behind Cheng Mei Materials and SS Healthcare Holding 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.