Correlation Between Wah Lee and FSP Technology
Can any of the company-specific risk be diversified away by investing in both Wah Lee and FSP Technology 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 Wah Lee and FSP Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wah Lee Industrial and FSP Technology, you can compare the effects of market volatilities on Wah Lee and FSP Technology 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 Wah Lee with a short position of FSP Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wah Lee and FSP Technology.
Diversification Opportunities for Wah Lee and FSP Technology
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Wah and FSP is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Wah Lee Industrial and FSP Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FSP Technology and Wah Lee 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 Wah Lee Industrial are associated (or correlated) with FSP Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FSP Technology has no effect on the direction of Wah Lee i.e., Wah Lee and FSP Technology go up and down completely randomly.
Pair Corralation between Wah Lee and FSP Technology
Assuming the 90 days trading horizon Wah Lee is expected to generate 1.6 times less return on investment than FSP Technology. But when comparing it to its historical volatility, Wah Lee Industrial is 1.11 times less risky than FSP Technology. It trades about 0.04 of its potential returns per unit of risk. FSP Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 4,000 in FSP Technology on November 4, 2024 and sell it today you would earn a total of 2,500 from holding FSP Technology or generate 62.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wah Lee Industrial vs. FSP Technology
Performance |
| Timeline |
| Wah Lee Industrial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| FSP Technology |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Wah Lee and FSP Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wah Lee and FSP Technology
The main advantage of trading using opposite Wah Lee and FSP Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wah Lee position performs unexpectedly, FSP Technology 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 FSP Technology will offset losses from the drop in FSP Technology's long position.The idea behind Wah Lee Industrial and FSP Technology 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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