Correlation Between Youngbo Chemical and Nam Hwa

Can any of the company-specific risk be diversified away by investing in both Youngbo Chemical and Nam Hwa 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 Youngbo Chemical and Nam Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Youngbo Chemical Co and Nam Hwa Construction, you can compare the effects of market volatilities on Youngbo Chemical and Nam Hwa 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 Youngbo Chemical with a short position of Nam Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Youngbo Chemical and Nam Hwa.

Diversification Opportunities for Youngbo Chemical and Nam Hwa

0.29

Correlation Coefficient

Youngbo Chemical  Nam Hwa

Modest diversification

The 3 months correlation between Youngbo and Nam is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Youngbo Chemical Co and Nam Hwa Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nam Hwa Construction and Youngbo Chemical 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 Youngbo Chemical Co are associated (or correlated) with Nam Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nam Hwa Construction has no effect on the direction of Youngbo Chemical i.e., Youngbo Chemical and Nam Hwa go up and down completely randomly.

Pair Corralation between Youngbo Chemical and Nam Hwa

Assuming the 90 days trading horizon Youngbo Chemical Co is expected to generate 0.61 times more return on investment than Nam Hwa. However, Youngbo Chemical Co is 1.63 times less risky than Nam Hwa. It trades about 0.3 of its potential returns per unit of risk. Nam Hwa Construction is currently generating about -0.23 per unit of risk. If you would invest  355,958  in Youngbo Chemical Co on October 22, 2024 and sell it today you would earn a total of  18,042  from holding Youngbo Chemical Co or generate 5.07% return on investment over 90 days.

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

Youngbo Chemical Co  vs.  Nam Hwa Construction

Youngbo Chemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youngbo Chemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Youngbo Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Nam Hwa Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nam Hwa Construction are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nam Hwa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Youngbo Chemical and Nam Hwa

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

The idea behind Youngbo Chemical Co and Nam Hwa 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.