Correlation Between Aerospace and Ye Chiu

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

By analyzing existing cross correlation between Aerospace Hi Tech Holding and Ye Chiu Metal, you can compare the effects of market volatilities on Aerospace and Ye Chiu 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 Aerospace with a short position of Ye Chiu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerospace and Ye Chiu.

Diversification Opportunities for Aerospace and Ye Chiu

0.61

Correlation Coefficient

Aerospace  Ye Chiu

Poor diversification

The 3 months correlation between Aerospace and 601388 is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Hi Tech Holding and Ye Chiu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ye Chiu Metal and Aerospace 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 Aerospace Hi Tech Holding are associated (or correlated) with Ye Chiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ye Chiu Metal has no effect on the direction of Aerospace i.e., Aerospace and Ye Chiu go up and down completely randomly.

Pair Corralation between Aerospace and Ye Chiu

Assuming the 90 days trading horizon Aerospace Hi Tech Holding is expected to generate 1.22 times more return on investment than Ye Chiu. However, Aerospace is 1.22 times more volatile than Ye Chiu Metal. It trades about -0.01 of its potential returns per unit of risk. Ye Chiu Metal is currently generating about -0.02 per unit of risk. If you would invest  1,221  in Aerospace Hi Tech Holding on October 1, 2024 and sell it today you would lose (77.00) from holding Aerospace Hi Tech Holding or give up 6.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Aerospace Hi Tech Holding  vs.  Ye Chiu Metal

Aerospace Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aerospace Hi Tech Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Aerospace is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ye Chiu Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ye Chiu Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ye Chiu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aerospace and Ye Chiu

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

The idea behind Aerospace Hi Tech Holding and Ye Chiu Metal 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.