Correlation Between Advanced Echem and Huang Hsiang

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

By analyzing existing cross correlation between Advanced Echem Materials and Huang Hsiang Construction, you can compare the effects of market volatilities on Advanced Echem and Huang Hsiang 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 Advanced Echem with a short position of Huang Hsiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Echem and Huang Hsiang.

Diversification Opportunities for Advanced Echem and Huang Hsiang

0.12

Correlation Coefficient

Advanced Echem  Huang Hsiang

Average diversification

The 3 months correlation between Advanced and Huang is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Echem Materials and Huang Hsiang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huang Hsiang Construction and Advanced Echem 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 Advanced Echem Materials are associated (or correlated) with Huang Hsiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huang Hsiang Construction has no effect on the direction of Advanced Echem i.e., Advanced Echem and Huang Hsiang go up and down completely randomly.

Pair Corralation between Advanced Echem and Huang Hsiang

Assuming the 90 days trading horizon Advanced Echem Materials is expected to generate 0.76 times more return on investment than Huang Hsiang. However, Advanced Echem Materials is 1.32 times less risky than Huang Hsiang. It trades about 0.09 of its potential returns per unit of risk. Huang Hsiang Construction is currently generating about 0.02 per unit of risk. If you would invest  61,100  in Advanced Echem Materials on September 15, 2024 and sell it today you would earn a total of  6,800  from holding Advanced Echem Materials or generate 11.13% return on investment over 90 days.

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

Advanced Echem Materials  vs.  Huang Hsiang Construction

Advanced Echem Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Echem Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Echem may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Huang Hsiang Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Huang Hsiang Construction are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Huang Hsiang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Advanced Echem and Huang Hsiang

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

The idea behind Advanced Echem Materials and Huang Hsiang 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.

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