Correlation Between Pou Chen and ALi Corp

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

By analyzing existing cross correlation between Pou Chen Corp and ALi Corp, you can compare the effects of market volatilities on Pou Chen and ALi Corp 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 Pou Chen with a short position of ALi Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pou Chen and ALi Corp.

Diversification Opportunities for Pou Chen and ALi Corp

0.68

Correlation Coefficient

Pou Chen  ALi Corp

Poor diversification

The 3 months correlation between Pou and ALi is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Pou Chen Corp and ALi Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALi Corp and Pou Chen 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 Pou Chen Corp are associated (or correlated) with ALi Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALi Corp has no effect on the direction of Pou Chen i.e., Pou Chen and ALi Corp go up and down completely randomly.

Pair Corralation between Pou Chen and ALi Corp

Assuming the 90 days trading horizon Pou Chen Corp is expected to generate 0.65 times more return on investment than ALi Corp. However, Pou Chen Corp is 1.54 times less risky than ALi Corp. It trades about 0.25 of its potential returns per unit of risk. ALi Corp is currently generating about -0.22 per unit of risk. If you would invest  3,840  in Pou Chen Corp on September 5, 2024 and sell it today you would earn a total of  485.00  from holding Pou Chen Corp or generate 12.63% return on investment over 90 days.

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

Pou Chen Corp  vs.  ALi Corp

Pou Chen Corp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen showed solid returns over the last few months and may actually be approaching a breakup point.

ALi Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ALi Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ALi Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pou Chen and ALi Corp

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

The idea behind Pou Chen Corp and ALi Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.