Correlation Between Her Chee and U Ming

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

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

Diversification Opportunities for Her Chee and U Ming

0.93

Correlation Coefficient

Her Chee  U Ming

Almost no diversification

The 3 months correlation between Her and 2606 is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Her Chee Industrial and U Ming Marine Transport in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on U Ming Marine and Her Chee 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 Her Chee Industrial are associated (or correlated) with U Ming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of U Ming Marine has no effect on the direction of Her Chee i.e., Her Chee and U Ming go up and down completely randomly.

Pair Corralation between Her Chee and U Ming

Assuming the 90 days trading horizon Her Chee Industrial is expected to generate 1.6 times more return on investment than U Ming. However, Her Chee is 1.6 times more volatile than U Ming Marine Transport. It trades about 0.23 of its potential returns per unit of risk. U Ming Marine Transport is currently generating about 0.03 per unit of risk. If you would invest  2,115  in Her Chee Industrial on September 12, 2024 and sell it today you would earn a total of  10,235  from holding Her Chee Industrial or generate 483.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.59%
Values	Daily Returns

Her Chee Industrial  vs.  U Ming Marine Transport

Her Chee Industrial

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Her Chee Industrial are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Her Chee showed solid returns over the last few months and may actually be approaching a breakup point.

U Ming Marine

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in U Ming Marine Transport are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, U Ming showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Her Chee and U Ming

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

The idea behind Her Chee Industrial and U Ming Marine Transport 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.