Correlation Between Chung Lien and Chi Hua

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

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

Diversification Opportunities for Chung Lien and Chi Hua

0.66

Correlation Coefficient

Chung Lien  Chi Hua

Poor diversification

The 3 months correlation between Chung and Chi is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Chung Lien Transportation 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 Chung Lien 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 Chung Lien Transportation 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 Chung Lien i.e., Chung Lien and Chi Hua go up and down completely randomly.

Pair Corralation between Chung Lien and Chi Hua

Assuming the 90 days trading horizon Chung Lien Transportation is expected to under-perform the Chi Hua. But the stock apears to be less risky and, when comparing its historical volatility, Chung Lien Transportation is 20.86 times less risky than Chi Hua. The stock trades about -0.05 of its potential returns per unit of risk. The Chi Hua Fitness is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,999  in Chi Hua Fitness on September 26, 2024 and sell it today you would lose (2,349) from holding Chi Hua Fitness or give up 39.16% of portfolio value over 90 days.

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

Chung Lien Transportation  vs.  Chi Hua Fitness

Chung Lien Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Chung Lien and Chi Hua

The main advantage of trading using opposite Chung Lien and Chi Hua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Lien 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 Chung Lien Transportation 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.