Correlation Between Merry Electronics and Zeng Hsing
Can any of the company-specific risk be diversified away by investing in both Merry Electronics and Zeng Hsing 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 Merry Electronics and Zeng Hsing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merry Electronics Co and Zeng Hsing Industrial, you can compare the effects of market volatilities on Merry Electronics and Zeng Hsing 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 Merry Electronics with a short position of Zeng Hsing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merry Electronics and Zeng Hsing.
Diversification Opportunities for Merry Electronics and Zeng Hsing
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merry and Zeng is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merry Electronics Co and Zeng Hsing Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zeng Hsing Industrial and Merry Electronics 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 Merry Electronics Co are associated (or correlated) with Zeng Hsing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zeng Hsing Industrial has no effect on the direction of Merry Electronics i.e., Merry Electronics and Zeng Hsing go up and down completely randomly.
Pair Corralation between Merry Electronics and Zeng Hsing
Assuming the 90 days trading horizon Merry Electronics Co is expected to under-perform the Zeng Hsing. In addition to that, Merry Electronics is 1.94 times more volatile than Zeng Hsing Industrial. It trades about -0.05 of its total potential returns per unit of risk. Zeng Hsing Industrial is currently generating about 0.02 per unit of volatility. If you would invest 10,100 in Zeng Hsing Industrial on September 1, 2024 and sell it today you would earn a total of 250.00 from holding Zeng Hsing Industrial or generate 2.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merry Electronics Co vs. Zeng Hsing Industrial
Performance |
| Timeline |
| Merry Electronics |
| Zeng Hsing Industrial |
Merry Electronics and Zeng Hsing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merry Electronics and Zeng Hsing
The main advantage of trading using opposite Merry Electronics and Zeng Hsing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merry Electronics position performs unexpectedly, Zeng Hsing 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 Zeng Hsing will offset losses from the drop in Zeng Hsing's long position.The idea behind Merry Electronics Co and Zeng Hsing Industrial 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.| Zeng Hsing vs. TTET Union Corp | Zeng Hsing vs. Shinkong Insurance Co | Zeng Hsing vs. Huaku Development Co | Zeng Hsing vs. China Steel Chemical |
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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