Correlation Between Great China and Phison Electronics

Can any of the company-specific risk be diversified away by investing in both Great China and Phison Electronics 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 Great China and Phison Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Great China Metal and Phison Electronics, you can compare the effects of market volatilities on Great China and Phison Electronics 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 Great China with a short position of Phison Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great China and Phison Electronics.

Diversification Opportunities for Great China and Phison Electronics

-0.2

Correlation Coefficient

Great China  Phison Electronics

Good diversification

The 3 months correlation between Great and Phison is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and Phison Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phison Electronics and Great China 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 Great China Metal are associated (or correlated) with Phison Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phison Electronics has no effect on the direction of Great China i.e., Great China and Phison Electronics go up and down completely randomly.

Pair Corralation between Great China and Phison Electronics

Assuming the 90 days trading horizon Great China is expected to generate 15.61 times less return on investment than Phison Electronics. But when comparing it to its historical volatility, Great China Metal is 6.01 times less risky than Phison Electronics. It trades about 0.02 of its potential returns per unit of risk. Phison Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  48,900  in Phison Electronics on October 8, 2024 and sell it today you would earn a total of  3,000  from holding Phison Electronics or generate 6.13% return on investment over 90 days.

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

Great China Metal  vs.  Phison Electronics

Great China Metal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Great China Metal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Great China is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Phison Electronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Phison Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Phison Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Great China and Phison Electronics

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

The idea behind Great China Metal and Phison 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 Global Correlations module to find global opportunities by holding instruments from different markets.