Correlation Between Far Eastern and Tong Yang

Can any of the company-specific risk be diversified away by investing in both Far Eastern and Tong Yang 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 Far Eastern and Tong Yang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Far Eastern New and Tong Yang Industry, you can compare the effects of market volatilities on Far Eastern and Tong Yang 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 Far Eastern with a short position of Tong Yang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Tong Yang.

Diversification Opportunities for Far Eastern and Tong Yang

-0.32

Correlation Coefficient

Far Eastern  Tong Yang

Very good diversification

The 3 months correlation between Far and Tong is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern New and Tong Yang Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Yang Industry and Far Eastern 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 Far Eastern New are associated (or correlated) with Tong Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Yang Industry has no effect on the direction of Far Eastern i.e., Far Eastern and Tong Yang go up and down completely randomly.

Pair Corralation between Far Eastern and Tong Yang

Assuming the 90 days trading horizon Far Eastern New is expected to under-perform the Tong Yang. But the stock apears to be less risky and, when comparing its historical volatility, Far Eastern New is 1.31 times less risky than Tong Yang. The stock trades about -0.04 of its potential returns per unit of risk. The Tong Yang Industry is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  9,900  in Tong Yang Industry on September 5, 2024 and sell it today you would earn a total of  1,800  from holding Tong Yang Industry or generate 18.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Far Eastern New  vs.  Tong Yang Industry

Far Eastern New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far Eastern New has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far Eastern is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Tong Yang Industry

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tong Yang Industry are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tong Yang showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Far Eastern and Tong Yang

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

The idea behind Far Eastern New and Tong Yang Industry 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..