Correlation Between Tong Hsing and Lotes
Can any of the company-specific risk be diversified away by investing in both Tong Hsing and Lotes 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 Tong Hsing and Lotes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tong Hsing Electronic and Lotes Co, you can compare the effects of market volatilities on Tong Hsing and Lotes 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 Tong Hsing with a short position of Lotes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Hsing and Lotes.
Diversification Opportunities for Tong Hsing and Lotes
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tong and Lotes is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Tong Hsing Electronic and Lotes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotes and Tong Hsing 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 Tong Hsing Electronic are associated (or correlated) with Lotes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotes has no effect on the direction of Tong Hsing i.e., Tong Hsing and Lotes go up and down completely randomly.
Pair Corralation between Tong Hsing and Lotes
Assuming the 90 days trading horizon Tong Hsing Electronic is expected to under-perform the Lotes. But the stock apears to be less risky and, when comparing its historical volatility, Tong Hsing Electronic is 1.1 times less risky than Lotes. The stock trades about -0.22 of its potential returns per unit of risk. The Lotes Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 183,000 in Lotes Co on November 5, 2024 and sell it today you would earn a total of 5,000 from holding Lotes Co or generate 2.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tong Hsing Electronic vs. Lotes Co
Performance |
| Timeline |
| Tong Hsing Electronic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
| Lotes |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
Tong Hsing and Lotes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tong Hsing and Lotes
The main advantage of trading using opposite Tong Hsing and Lotes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tong Hsing position performs unexpectedly, Lotes 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 Lotes will offset losses from the drop in Lotes' long position.The idea behind Tong Hsing Electronic and Lotes Co 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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