Correlation Between Chunghwa Precision and Shenmao Technology

Can any of the company-specific risk be diversified away by investing in both Chunghwa Precision and Shenmao Technology 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 Chunghwa Precision and Shenmao Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chunghwa Precision Test and Shenmao Technology, you can compare the effects of market volatilities on Chunghwa Precision and Shenmao Technology 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 Chunghwa Precision with a short position of Shenmao Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Precision and Shenmao Technology.

Diversification Opportunities for Chunghwa Precision and Shenmao Technology

-0.61

Correlation Coefficient

Chunghwa Precision  Shenmao Technology

Excellent diversification

The 3 months correlation between Chunghwa and Shenmao is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Precision Test and Shenmao Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenmao Technology and Chunghwa Precision 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 Chunghwa Precision Test are associated (or correlated) with Shenmao Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenmao Technology has no effect on the direction of Chunghwa Precision i.e., Chunghwa Precision and Shenmao Technology go up and down completely randomly.

Pair Corralation between Chunghwa Precision and Shenmao Technology

Assuming the 90 days trading horizon Chunghwa Precision Test is expected to under-perform the Shenmao Technology. In addition to that, Chunghwa Precision is 3.1 times more volatile than Shenmao Technology. It trades about -0.05 of its total potential returns per unit of risk. Shenmao Technology is currently generating about -0.07 per unit of volatility. If you would invest  6,620  in Shenmao Technology on October 11, 2024 and sell it today you would lose (110.00) from holding Shenmao Technology or give up 1.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Chunghwa Precision Test  vs.  Shenmao Technology

Chunghwa Precision Test

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Precision Test are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chunghwa Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Shenmao Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Chunghwa Precision and Shenmao Technology

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

The idea behind Chunghwa Precision Test and Shenmao Technology 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.