Correlation Between Song Ho and Wah Hong

Can any of the company-specific risk be diversified away by investing in both Song Ho and Wah Hong 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 Wah Hong 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 Wah Hong Industrial, you can compare the effects of market volatilities on Song Ho and Wah Hong 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 Wah Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and Wah Hong.

Diversification Opportunities for Song Ho and Wah Hong

0.49

Correlation Coefficient

Song Ho  Wah Hong

Very weak diversification

The 3 months correlation between Song and Wah is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and Wah Hong Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Hong Industrial 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 Wah Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Hong Industrial has no effect on the direction of Song Ho i.e., Song Ho and Wah Hong go up and down completely randomly.

Pair Corralation between Song Ho and Wah Hong

Assuming the 90 days trading horizon Song Ho Industrial is expected to under-perform the Wah Hong. But the stock apears to be less risky and, when comparing its historical volatility, Song Ho Industrial is 3.22 times less risky than Wah Hong. The stock trades about -0.07 of its potential returns per unit of risk. The Wah Hong Industrial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,655  in Wah Hong Industrial on March 12, 2024 and sell it today you would earn a total of  35.00  from holding Wah Hong Industrial or generate 0.96% return on investment over 90 days.

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

Song Ho Industrial  vs.  Wah Hong Industrial

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.

Wah Hong Industrial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wah Hong Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Wah Hong may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Song Ho and Wah Hong

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

The idea behind Song Ho Industrial and Wah Hong Industrial 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.