Correlation Between Pou Chen and Nien Hsing

Can any of the company-specific risk be diversified away by investing in both Pou Chen and Nien Hsing 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 Pou Chen and Nien Hsing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pou Chen Corp and Nien Hsing Textile, you can compare the effects of market volatilities on Pou Chen and Nien Hsing 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 Pou Chen with a short position of Nien Hsing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pou Chen and Nien Hsing.

Diversification Opportunities for Pou Chen and Nien Hsing

0.86

Correlation Coefficient

Pou Chen  Nien Hsing

Very poor diversification

The 3 months correlation between Pou and Nien is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pou Chen Corp and Nien Hsing Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nien Hsing Textile and Pou Chen 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 Pou Chen Corp are associated (or correlated) with Nien Hsing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nien Hsing Textile has no effect on the direction of Pou Chen i.e., Pou Chen and Nien Hsing go up and down completely randomly.

Pair Corralation between Pou Chen and Nien Hsing

Assuming the 90 days trading horizon Pou Chen Corp is expected to generate 2.21 times more return on investment than Nien Hsing. However, Pou Chen is 2.21 times more volatile than Nien Hsing Textile. It trades about 0.08 of its potential returns per unit of risk. Nien Hsing Textile is currently generating about 0.01 per unit of risk. If you would invest  3,545  in Pou Chen Corp on September 22, 2024 and sell it today you would earn a total of  325.00  from holding Pou Chen Corp or generate 9.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Pou Chen Corp  vs.  Nien Hsing Textile

Pou Chen Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nien Hsing Textile

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nien Hsing Textile are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Nien Hsing 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 Pou Chen and Nien Hsing

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

The idea behind Pou Chen Corp and Nien Hsing Textile 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.