Correlation Between Wei Chih and Chain Chon
Can any of the company-specific risk be diversified away by investing in both Wei Chih and Chain Chon 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 Chain Chon 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 Chain Chon Industrial, you can compare the effects of market volatilities on Wei Chih and Chain Chon 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 Chain Chon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wei Chih and Chain Chon.
Diversification Opportunities for Wei Chih and Chain Chon
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wei and Chain is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chih Steel and Chain Chon Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chain Chon Industrial 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 Chain Chon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chain Chon Industrial has no effect on the direction of Wei Chih i.e., Wei Chih and Chain Chon go up and down completely randomly.
Pair Corralation between Wei Chih and Chain Chon
Assuming the 90 days trading horizon Wei Chih Steel is expected to generate 0.39 times more return on investment than Chain Chon. However, Wei Chih Steel is 2.6 times less risky than Chain Chon. It trades about -0.03 of its potential returns per unit of risk. Chain Chon Industrial is currently generating about -0.29 per unit of risk. If you would invest 2,270 in Wei Chih Steel on August 30, 2024 and sell it today you would lose (20.00) from holding Wei Chih Steel or give up 0.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wei Chih Steel vs. Chain Chon Industrial
Performance |
| Timeline |
| Wei Chih Steel |
| Chain Chon Industrial |
Wei Chih and Chain Chon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wei Chih and Chain Chon
The main advantage of trading using opposite Wei Chih and Chain Chon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wei Chih position performs unexpectedly, Chain Chon 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 Chain Chon will offset losses from the drop in Chain Chon's long position.| Wei Chih vs. Chung Hung Steel | Wei Chih vs. Sheng Yu Steel | Wei Chih vs. Hsin Kuang Steel | Wei Chih vs. Tung Ho Steel |
| Chain Chon vs. Tung Ho Steel | Chain Chon vs. Wei Chih Steel | Chain Chon vs. Newretail Co | Chain Chon vs. Tang Eng Iron |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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