Correlation Between Tung Ho and Advanced Ceramic
Can any of the company-specific risk be diversified away by investing in both Tung Ho and Advanced Ceramic 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 Tung Ho and Advanced Ceramic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tung Ho Steel and Advanced Ceramic X, you can compare the effects of market volatilities on Tung Ho and Advanced Ceramic 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 Tung Ho with a short position of Advanced Ceramic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tung Ho and Advanced Ceramic.
Diversification Opportunities for Tung Ho and Advanced Ceramic
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Tung and Advanced is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Tung Ho Steel and Advanced Ceramic X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Ceramic X and Tung Ho 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 Tung Ho Steel are associated (or correlated) with Advanced Ceramic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Ceramic X has no effect on the direction of Tung Ho i.e., Tung Ho and Advanced Ceramic go up and down completely randomly.
Pair Corralation between Tung Ho and Advanced Ceramic
Assuming the 90 days trading horizon Tung Ho Steel is expected to generate 0.71 times more return on investment than Advanced Ceramic. However, Tung Ho Steel is 1.41 times less risky than Advanced Ceramic. It trades about 0.09 of its potential returns per unit of risk. Advanced Ceramic X is currently generating about -0.32 per unit of risk. If you would invest 6,700 in Tung Ho Steel on November 3, 2024 and sell it today you would earn a total of 120.00 from holding Tung Ho Steel or generate 1.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tung Ho Steel vs. Advanced Ceramic X
Performance |
| Timeline |
| Tung Ho Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Advanced Ceramic X |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Tung Ho and Advanced Ceramic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tung Ho and Advanced Ceramic
The main advantage of trading using opposite Tung Ho and Advanced Ceramic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tung Ho position performs unexpectedly, Advanced Ceramic 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 Advanced Ceramic will offset losses from the drop in Advanced Ceramic's long position.The idea behind Tung Ho Steel and Advanced Ceramic X 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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