Correlation Between Wei Chih and Tung Ho
Can any of the company-specific risk be diversified away by investing in both Wei Chih and Tung Ho 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 Wei Chih and Tung Ho into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wei Chih Steel and Tung Ho Steel, you can compare the effects of market volatilities on Wei Chih and Tung Ho 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 Wei Chih with a short position of Tung Ho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wei Chih and Tung Ho.
Diversification Opportunities for Wei Chih and Tung Ho
Almost no diversification
The 3 months correlation between Wei and Tung is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chih Steel and Tung Ho Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tung Ho Steel and Wei Chih 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 Wei Chih Steel are associated (or correlated) with Tung Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tung Ho Steel has no effect on the direction of Wei Chih i.e., Wei Chih and Tung Ho go up and down completely randomly.
Pair Corralation between Wei Chih and Tung Ho
Assuming the 90 days trading horizon Wei Chih Steel is expected to under-perform the Tung Ho. In addition to that, Wei Chih is 1.37 times more volatile than Tung Ho Steel. It trades about -0.02 of its total potential returns per unit of risk. Tung Ho Steel is currently generating about 0.04 per unit of volatility. If you would invest 5,660 in Tung Ho Steel on November 5, 2024 and sell it today you would earn a total of 1,160 from holding Tung Ho Steel or generate 20.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Wei Chih Steel vs. Tung Ho Steel
Performance |
| Timeline |
| Wei Chih Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tung Ho Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Wei Chih and Tung Ho Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wei Chih and Tung Ho
The main advantage of trading using opposite Wei Chih and Tung Ho positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wei Chih position performs unexpectedly, Tung Ho 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 Tung Ho will offset losses from the drop in Tung Ho's long position.The idea behind Wei Chih Steel and Tung Ho Steel 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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