Correlation Between Te Chang and Chien Kuo

Can any of the company-specific risk be diversified away by investing in both Te Chang and Chien Kuo 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 Chien Kuo 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 Chien Kuo Construction, you can compare the effects of market volatilities on Te Chang and Chien Kuo 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 Chien Kuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Te Chang and Chien Kuo.

Diversification Opportunities for Te Chang and Chien Kuo

0.91

Correlation Coefficient

Te Chang  Chien Kuo

Almost no diversification

The 3 months correlation between 5511 and Chien is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Te Chang Construction and Chien Kuo Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chien Kuo Construction 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 Chien Kuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chien Kuo Construction has no effect on the direction of Te Chang i.e., Te Chang and Chien Kuo go up and down completely randomly.

Pair Corralation between Te Chang and Chien Kuo

Assuming the 90 days trading horizon Te Chang is expected to generate 1.84 times less return on investment than Chien Kuo. But when comparing it to its historical volatility, Te Chang Construction is 2.95 times less risky than Chien Kuo. It trades about 0.19 of its potential returns per unit of risk. Chien Kuo Construction is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,230  in Chien Kuo Construction on September 20, 2024 and sell it today you would earn a total of  470.00  from holding Chien Kuo Construction or generate 21.08% return on investment over 90 days.

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

Te Chang Construction  vs.  Chien Kuo Construction

Te Chang Construction

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 14 (%) 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 January 2025.

Chien Kuo Construction

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chien Kuo Construction are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chien Kuo showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Te Chang and Chien Kuo

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

The idea behind Te Chang Construction and Chien Kuo Construction 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .