Correlation Between Song Ho and Tong Tai

Can any of the company-specific risk be diversified away by investing in both Song Ho and Tong Tai 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 Tong Tai 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 Tong Tai Machine Tool, you can compare the effects of market volatilities on Song Ho and Tong Tai 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 Tong Tai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and Tong Tai.

Diversification Opportunities for Song Ho and Tong Tai

0.38

Correlation Coefficient

Song Ho  Tong Tai

Weak diversification

The 3 months correlation between Song and Tong is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and Tong Tai Machine Tool in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Tai Machine 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 Tong Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Tai Machine has no effect on the direction of Song Ho i.e., Song Ho and Tong Tai go up and down completely randomly.

Pair Corralation between Song Ho and Tong Tai

Assuming the 90 days trading horizon Song Ho Industrial is expected to generate 0.16 times more return on investment than Tong Tai. However, Song Ho Industrial is 6.35 times less risky than Tong Tai. It trades about -0.04 of its potential returns per unit of risk. Tong Tai Machine Tool is currently generating about -0.1 per unit of risk. If you would invest  2,780  in Song Ho Industrial on September 18, 2024 and sell it today you would lose (40.00) from holding Song Ho Industrial or give up 1.44% of portfolio value over 90 days.

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

Song Ho Industrial  vs.  Tong Tai Machine Tool

Song Ho Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tong Tai Machine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tong Tai Machine Tool 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Song Ho and Tong Tai

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

The idea behind Song Ho Industrial and Tong Tai Machine Tool 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.