Correlation Between Song Ho and China Airlines

Can any of the company-specific risk be diversified away by investing in both Song Ho and China Airlines 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 Song Ho and China Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Song Ho Industrial and China Airlines, you can compare the effects of market volatilities on Song Ho and China Airlines 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 Song Ho with a short position of China Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and China Airlines.

Diversification Opportunities for Song Ho and China Airlines

0.34

Correlation Coefficient

Song Ho  China Airlines

Weak diversification

The 3 months correlation between Song and China is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and China Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Airlines and Song Ho 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 Song Ho Industrial are associated (or correlated) with China Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Airlines has no effect on the direction of Song Ho i.e., Song Ho and China Airlines go up and down completely randomly.

Pair Corralation between Song Ho and China Airlines

Assuming the 90 days trading horizon Song Ho is expected to generate 37.64 times less return on investment than China Airlines. But when comparing it to its historical volatility, Song Ho Industrial is 3.92 times less risky than China Airlines. It trades about 0.01 of its potential returns per unit of risk. China Airlines is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,985  in China Airlines on March 12, 2024 and sell it today you would earn a total of  325.00  from holding China Airlines or generate 16.37% return on investment over 90 days.

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

Song Ho Industrial  vs.  China Airlines

Song Ho Industrial

Risk-Adjusted Performance

1 of 100

Weak

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

China Airlines

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Song Ho and China Airlines

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

The idea behind Song Ho Industrial and China Airlines 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.