Correlation Between Song Ho and Chun Yuan

Can any of the company-specific risk be diversified away by investing in both Song Ho and Chun Yuan 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 Song Ho and Chun Yuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Song Ho Industrial and Chun Yuan Steel, you can compare the effects of market volatilities on Song Ho and Chun Yuan 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 Song Ho with a short position of Chun Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and Chun Yuan.

Diversification Opportunities for Song Ho and Chun Yuan

0.88

Correlation Coefficient

Song Ho  Chun Yuan

Very poor diversification

The 3 months correlation between Song and Chun is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and Chun Yuan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chun Yuan Steel and Song Ho 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 Song Ho Industrial are associated (or correlated) with Chun Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chun Yuan Steel has no effect on the direction of Song Ho i.e., Song Ho and Chun Yuan go up and down completely randomly.

Pair Corralation between Song Ho and Chun Yuan

Assuming the 90 days trading horizon Song Ho is expected to generate 14.01 times less return on investment than Chun Yuan. But when comparing it to its historical volatility, Song Ho Industrial is 2.42 times less risky than Chun Yuan. It trades about 0.03 of its potential returns per unit of risk. Chun Yuan Steel is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,805  in Chun Yuan Steel on December 28, 2024 and sell it today you would earn a total of  255.00  from holding Chun Yuan Steel or generate 14.13% return on investment over 90 days.

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

Song Ho Industrial  vs.  Chun Yuan Steel

Song Ho Industrial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Song Ho Industrial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Song Ho is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chun Yuan Steel

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chun Yuan Steel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chun Yuan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Song Ho and Chun Yuan

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

The idea behind Song Ho Industrial and Chun Yuan Steel 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..