Correlation Between Tang Eng and Chun Yuan
Can any of the company-specific risk be diversified away by investing in both Tang Eng and Chun Yuan 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 Tang Eng and Chun Yuan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tang Eng Iron and Chun Yuan Steel, you can compare the effects of market volatilities on Tang Eng and Chun Yuan 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 Tang Eng with a short position of Chun Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tang Eng and Chun Yuan.
Diversification Opportunities for Tang Eng and Chun Yuan
Poor diversification
The 3 months correlation between Tang and Chun is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tang Eng Iron and Chun Yuan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chun Yuan Steel and Tang Eng 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 Tang Eng Iron are associated (or correlated) with Chun Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chun Yuan Steel has no effect on the direction of Tang Eng i.e., Tang Eng and Chun Yuan go up and down completely randomly.
Pair Corralation between Tang Eng and Chun Yuan
Assuming the 90 days trading horizon Tang Eng is expected to generate 3.44 times less return on investment than Chun Yuan. But when comparing it to its historical volatility, Tang Eng Iron is 1.72 times less risky than Chun Yuan. It trades about 0.02 of its potential returns per unit of risk. Chun Yuan Steel is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,570 in Chun Yuan Steel on August 30, 2024 and sell it today you would earn a total of 285.00 from holding Chun Yuan Steel or generate 18.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tang Eng Iron vs. Chun Yuan Steel
Performance |
| Timeline |
| Tang Eng Iron |
| Chun Yuan Steel |
Tang Eng and Chun Yuan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tang Eng and Chun Yuan
The main advantage of trading using opposite Tang Eng and Chun Yuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tang Eng position performs unexpectedly, Chun Yuan 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 Chun Yuan will offset losses from the drop in Chun Yuan's long position.| Tang Eng vs. Goldsun Building Materials | Tang Eng vs. CKM Building Material | Tang Eng vs. Shih Kuen Plastics | Tang Eng vs. Taiwan Cooperative Financial |
| Chun Yuan vs. Hsin Kuang Steel | Chun Yuan vs. Chung Hung Steel | Chun Yuan vs. China Steel Structure | Chun Yuan vs. Feng Hsin Steel |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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