Correlation Between Far Eastern and Cheng Shin
Can any of the company-specific risk be diversified away by investing in both Far Eastern and Cheng Shin 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 Far Eastern and Cheng Shin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Far Eastern New and Cheng Shin Rubber, you can compare the effects of market volatilities on Far Eastern and Cheng Shin 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 Far Eastern with a short position of Cheng Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Cheng Shin.
Diversification Opportunities for Far Eastern and Cheng Shin
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Far and Cheng is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern New and Cheng Shin Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Shin Rubber and Far Eastern 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 Far Eastern New are associated (or correlated) with Cheng Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Shin Rubber has no effect on the direction of Far Eastern i.e., Far Eastern and Cheng Shin go up and down completely randomly.
Pair Corralation between Far Eastern and Cheng Shin
Assuming the 90 days trading horizon Far Eastern New is expected to under-perform the Cheng Shin. In addition to that, Far Eastern is 1.56 times more volatile than Cheng Shin Rubber. It trades about -0.1 of its total potential returns per unit of risk. Cheng Shin Rubber is currently generating about -0.04 per unit of volatility. If you would invest 4,995 in Cheng Shin Rubber on November 5, 2024 and sell it today you would lose (30.00) from holding Cheng Shin Rubber or give up 0.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Far Eastern New vs. Cheng Shin Rubber
Performance |
| Timeline |
| Far Eastern New |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Cheng Shin Rubber |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Far Eastern and Cheng Shin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Far Eastern and Cheng Shin
The main advantage of trading using opposite Far Eastern and Cheng Shin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far Eastern position performs unexpectedly, Cheng Shin 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 Cheng Shin will offset losses from the drop in Cheng Shin's long position.The idea behind Far Eastern New and Cheng Shin Rubber 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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