Correlation Between Wah Hong and ALFORMER Industrial

Can any of the company-specific risk be diversified away by investing in both Wah Hong and ALFORMER Industrial 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 Wah Hong and ALFORMER Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wah Hong Industrial and ALFORMER Industrial Co, you can compare the effects of market volatilities on Wah Hong and ALFORMER Industrial 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 Wah Hong with a short position of ALFORMER Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wah Hong and ALFORMER Industrial.

Diversification Opportunities for Wah Hong and ALFORMER Industrial

0.77

Correlation Coefficient

Wah Hong  ALFORMER Industrial

Poor diversification

The 3 months correlation between Wah and ALFORMER is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Wah Hong Industrial and ALFORMER Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALFORMER Industrial and Wah Hong 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 Wah Hong Industrial are associated (or correlated) with ALFORMER Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALFORMER Industrial has no effect on the direction of Wah Hong i.e., Wah Hong and ALFORMER Industrial go up and down completely randomly.

Pair Corralation between Wah Hong and ALFORMER Industrial

Assuming the 90 days trading horizon Wah Hong Industrial is expected to generate 0.96 times more return on investment than ALFORMER Industrial. However, Wah Hong Industrial is 1.05 times less risky than ALFORMER Industrial. It trades about 0.14 of its potential returns per unit of risk. ALFORMER Industrial Co is currently generating about 0.13 per unit of risk. If you would invest  3,295  in Wah Hong Industrial on September 13, 2024 and sell it today you would earn a total of  1,235  from holding Wah Hong Industrial or generate 37.48% return on investment over 90 days.

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

Wah Hong Industrial  vs.  ALFORMER Industrial Co

Wah Hong Industrial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wah Hong Industrial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wah Hong showed solid returns over the last few months and may actually be approaching a breakup point.

ALFORMER Industrial

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Wah Hong and ALFORMER Industrial

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

The idea behind Wah Hong Industrial and ALFORMER Industrial Co 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.