Correlation Between Yang Ming and Te Chang

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

By analyzing existing cross correlation between Yang Ming Marine and Te Chang Construction, you can compare the effects of market volatilities on Yang Ming and Te Chang 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 Yang Ming with a short position of Te Chang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yang Ming and Te Chang.

Diversification Opportunities for Yang Ming and Te Chang

0.65

Correlation Coefficient

Yang Ming  Te Chang

Poor diversification

The 3 months correlation between Yang and 5511 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Yang Ming Marine and Te Chang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Te Chang Construction and Yang Ming 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 Yang Ming Marine are associated (or correlated) with Te Chang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Te Chang Construction has no effect on the direction of Yang Ming i.e., Yang Ming and Te Chang go up and down completely randomly.

Pair Corralation between Yang Ming and Te Chang

Assuming the 90 days trading horizon Yang Ming Marine is expected to generate 1.73 times more return on investment than Te Chang. However, Yang Ming is 1.73 times more volatile than Te Chang Construction. It trades about 0.08 of its potential returns per unit of risk. Te Chang Construction is currently generating about -0.01 per unit of risk. If you would invest  4,310  in Yang Ming Marine on September 12, 2024 and sell it today you would earn a total of  3,740  from holding Yang Ming Marine or generate 86.77% return on investment over 90 days.

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

Yang Ming Marine  vs.  Te Chang Construction

Yang Ming Marine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yang Ming Marine are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yang Ming showed solid returns over the last few months and may actually be approaching a breakup point.

Te Chang Construction

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Te Chang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Yang Ming and Te Chang

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

The idea behind Yang Ming Marine and Te Chang Construction 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.