Correlation Between Yang Ming and Lungyen Life

Can any of the company-specific risk be diversified away by investing in both Yang Ming and Lungyen Life 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 Lungyen Life 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 Lungyen Life Service, you can compare the effects of market volatilities on Yang Ming and Lungyen Life 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 Lungyen Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yang Ming and Lungyen Life.

Diversification Opportunities for Yang Ming and Lungyen Life

0.89

Correlation Coefficient

Yang Ming  Lungyen Life

Very poor diversification

The 3 months correlation between Yang and Lungyen is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Yang Ming Marine and Lungyen Life Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lungyen Life Service 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 Lungyen Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lungyen Life Service has no effect on the direction of Yang Ming i.e., Yang Ming and Lungyen Life go up and down completely randomly.

Pair Corralation between Yang Ming and Lungyen Life

Assuming the 90 days trading horizon Yang Ming is expected to generate 1.92 times less return on investment than Lungyen Life. In addition to that, Yang Ming is 1.3 times more volatile than Lungyen Life Service. It trades about 0.06 of its total potential returns per unit of risk. Lungyen Life Service is currently generating about 0.14 per unit of volatility. If you would invest  5,090  in Lungyen Life Service on September 23, 2024 and sell it today you would earn a total of  340.00  from holding Lungyen Life Service or generate 6.68% return on investment over 90 days.

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

Yang Ming Marine  vs.  Lungyen Life Service

Yang Ming Marine

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yang Ming Marine are ranked lower than 10 (%) 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.

Lungyen Life Service

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lungyen Life Service are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lungyen Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yang Ming and Lungyen Life

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

The idea behind Yang Ming Marine and Lungyen Life Service 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.