Correlation Between Chung Lien and Sea Sonic

Can any of the company-specific risk be diversified away by investing in both Chung Lien and Sea Sonic 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 Sea Sonic 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 Sea Sonic Electronics, you can compare the effects of market volatilities on Chung Lien and Sea Sonic 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 Sea Sonic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Lien and Sea Sonic.

Diversification Opportunities for Chung Lien and Sea Sonic

0.08

Correlation Coefficient

Chung Lien  Sea Sonic

Significant diversification

The 3 months correlation between Chung and Sea is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Chung Lien Transportation and Sea Sonic Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Sonic Electronics 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 Sea Sonic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Sonic Electronics has no effect on the direction of Chung Lien i.e., Chung Lien and Sea Sonic go up and down completely randomly.

Pair Corralation between Chung Lien and Sea Sonic

Assuming the 90 days trading horizon Chung Lien Transportation is expected to under-perform the Sea Sonic. But the stock apears to be less risky and, when comparing its historical volatility, Chung Lien Transportation is 2.29 times less risky than Sea Sonic. The stock trades about -0.01 of its potential returns per unit of risk. The Sea Sonic Electronics is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,000  in Sea Sonic Electronics on December 21, 2024 and sell it today you would earn a total of  980.00  from holding Sea Sonic Electronics or generate 14.0% return on investment over 90 days.

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

Chung Lien Transportation  vs.  Sea Sonic Electronics

Chung Lien Transportation

Risk-Adjusted Performance

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.

Sea Sonic Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Sonic Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sea Sonic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Lien and Sea Sonic

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

The idea behind Chung Lien Transportation and Sea Sonic Electronics 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.