Correlation Between Te Chang and Chi Hua

Can any of the company-specific risk be diversified away by investing in both Te Chang and Chi Hua 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 Te Chang and Chi Hua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Te Chang Construction and Chi Hua Fitness, you can compare the effects of market volatilities on Te Chang and Chi Hua 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 Te Chang with a short position of Chi Hua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Te Chang and Chi Hua.

Diversification Opportunities for Te Chang and Chi Hua

-0.89

Correlation Coefficient

Te Chang  Chi Hua

Pay attention - limited upside

The 3 months correlation between 5511 and Chi is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Te Chang Construction and Chi Hua Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Hua Fitness and Te Chang 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 Te Chang Construction are associated (or correlated) with Chi Hua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Hua Fitness has no effect on the direction of Te Chang i.e., Te Chang and Chi Hua go up and down completely randomly.

Pair Corralation between Te Chang and Chi Hua

Assuming the 90 days trading horizon Te Chang Construction is expected to generate 1.15 times more return on investment than Chi Hua. However, Te Chang is 1.15 times more volatile than Chi Hua Fitness. It trades about -0.02 of its potential returns per unit of risk. Chi Hua Fitness is currently generating about -0.04 per unit of risk. If you would invest  6,640  in Te Chang Construction on October 4, 2024 and sell it today you would lose (370.00) from holding Te Chang Construction or give up 5.57% of portfolio value over 90 days.

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

Te Chang Construction  vs.  Chi Hua Fitness

Te Chang Construction

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Te Chang may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Chi Hua Fitness

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chi Hua Fitness 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 Te Chang and Chi Hua

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

The idea behind Te Chang Construction and Chi Hua Fitness 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.