Correlation Between Hsin Kuang and Chien Shing
Can any of the company-specific risk be diversified away by investing in both Hsin Kuang and Chien Shing 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 Hsin Kuang and Chien Shing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hsin Kuang Steel and Chien Shing Stainless, you can compare the effects of market volatilities on Hsin Kuang and Chien Shing 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 Hsin Kuang with a short position of Chien Shing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hsin Kuang and Chien Shing.
Diversification Opportunities for Hsin Kuang and Chien Shing
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hsin and Chien is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hsin Kuang Steel and Chien Shing Stainless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chien Shing Stainless and Hsin Kuang 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 Hsin Kuang Steel are associated (or correlated) with Chien Shing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chien Shing Stainless has no effect on the direction of Hsin Kuang i.e., Hsin Kuang and Chien Shing go up and down completely randomly.
Pair Corralation between Hsin Kuang and Chien Shing
Assuming the 90 days trading horizon Hsin Kuang Steel is expected to under-perform the Chien Shing. But the stock apears to be less risky and, when comparing its historical volatility, Hsin Kuang Steel is 1.26 times less risky than Chien Shing. The stock trades about -0.06 of its potential returns per unit of risk. The Chien Shing Stainless is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,190 in Chien Shing Stainless on September 3, 2024 and sell it today you would lose (100.00) from holding Chien Shing Stainless or give up 8.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hsin Kuang Steel vs. Chien Shing Stainless
Performance |
| Timeline |
| Hsin Kuang Steel |
| Chien Shing Stainless |
Hsin Kuang and Chien Shing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hsin Kuang and Chien Shing
The main advantage of trading using opposite Hsin Kuang and Chien Shing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hsin Kuang position performs unexpectedly, Chien Shing 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 Chien Shing will offset losses from the drop in Chien Shing's long position.The idea behind Hsin Kuang Steel and Chien Shing Stainless 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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