Correlation Between Tong Tai and Chain Chon

Can any of the company-specific risk be diversified away by investing in both Tong Tai and Chain Chon 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 Tai and Chain Chon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tong Tai Machine Tool and Chain Chon Industrial, you can compare the effects of market volatilities on Tong Tai and Chain Chon 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 Tai with a short position of Chain Chon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Tai and Chain Chon.

Diversification Opportunities for Tong Tai and Chain Chon

-0.9

Correlation Coefficient

Tong Tai  Chain Chon

Pay attention - limited upside

The 1 month correlation between Tong and Chain is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tong Tai Machine Tool and Chain Chon Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chain Chon Industrial and Tong Tai 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 Tai Machine Tool are associated (or correlated) with Chain Chon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chain Chon Industrial has no effect on the direction of Tong Tai i.e., Tong Tai and Chain Chon go up and down completely randomly.

Pair Corralation between Tong Tai and Chain Chon

Assuming the 90 days trading horizon Tong Tai Machine Tool is expected to under-perform the Chain Chon. But the stock apears to be less risky and, when comparing its historical volatility, Tong Tai Machine Tool is 1.06 times less risky than Chain Chon. The stock trades about -0.25 of its potential returns per unit of risk. The Chain Chon Industrial is currently generating about 0.45 of returns per unit of risk over similar time horizon. If you would invest  1,340  in Chain Chon Industrial on February 21, 2024 and sell it today you would earn a total of  400.00  from holding Chain Chon Industrial or generate 29.85% return on investment over 90 days.

Time Period	1 Month [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Tong Tai Machine Tool  vs.  Chain Chon Industrial

Tong Tai Machine

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Tong Tai Machine Tool has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in June 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Chain Chon Industrial

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Chain Chon Industrial are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Chain Chon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tong Tai and Chain Chon

The main advantage of trading using opposite Tong Tai and Chain Chon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tong Tai position performs unexpectedly, Chain Chon 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 Chain Chon will offset losses from the drop in Chain Chon's long position.

The idea behind Tong Tai Machine Tool and Chain Chon 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.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.