Correlation Between Chien Kuo and Huang Hsiang

Can any of the company-specific risk be diversified away by investing in both Chien Kuo and Huang Hsiang 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 Chien Kuo and Huang Hsiang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chien Kuo Construction and Huang Hsiang Construction, you can compare the effects of market volatilities on Chien Kuo and Huang Hsiang 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 Chien Kuo with a short position of Huang Hsiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chien Kuo and Huang Hsiang.

Diversification Opportunities for Chien Kuo and Huang Hsiang

0.66

Correlation Coefficient

Chien Kuo  Huang Hsiang

Poor diversification

The 3 months correlation between Chien and Huang is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Chien Kuo Construction and Huang Hsiang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huang Hsiang Construction and Chien Kuo 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 Chien Kuo Construction are associated (or correlated) with Huang Hsiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huang Hsiang Construction has no effect on the direction of Chien Kuo i.e., Chien Kuo and Huang Hsiang go up and down completely randomly.

Pair Corralation between Chien Kuo and Huang Hsiang

Assuming the 90 days trading horizon Chien Kuo Construction is expected to generate 0.52 times more return on investment than Huang Hsiang. However, Chien Kuo Construction is 1.91 times less risky than Huang Hsiang. It trades about 0.0 of its potential returns per unit of risk. Huang Hsiang Construction is currently generating about -0.39 per unit of risk. If you would invest  2,710  in Chien Kuo Construction on September 24, 2024 and sell it today you would lose (10.00) from holding Chien Kuo Construction or give up 0.37% of portfolio value over 90 days.

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

Chien Kuo Construction  vs.  Huang Hsiang Construction

Chien Kuo Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chien Kuo Construction are ranked lower than 10 (%) 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.

Huang Hsiang Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huang Hsiang Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Huang Hsiang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chien Kuo and Huang Hsiang

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

The idea behind Chien Kuo Construction and Huang Hsiang 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.