Correlation Between Hung Chou and Tung Ho

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

By analyzing existing cross correlation between Hung Chou Fiber and Tung Ho Textile, you can compare the effects of market volatilities on Hung Chou and Tung Ho 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 Hung Chou with a short position of Tung Ho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hung Chou and Tung Ho.

Diversification Opportunities for Hung Chou and Tung Ho

0.79

Correlation Coefficient

Hung Chou  Tung Ho

Poor diversification

The 3 months correlation between Hung and Tung is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Hung Chou Fiber and Tung Ho Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tung Ho Textile and Hung Chou 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 Hung Chou Fiber are associated (or correlated) with Tung Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tung Ho Textile has no effect on the direction of Hung Chou i.e., Hung Chou and Tung Ho go up and down completely randomly.

Pair Corralation between Hung Chou and Tung Ho

Assuming the 90 days trading horizon Hung Chou Fiber is expected to generate 0.97 times more return on investment than Tung Ho. However, Hung Chou Fiber is 1.03 times less risky than Tung Ho. It trades about 0.12 of its potential returns per unit of risk. Tung Ho Textile is currently generating about 0.1 per unit of risk. If you would invest  985.00  in Hung Chou Fiber on October 8, 2024 and sell it today you would earn a total of  110.00  from holding Hung Chou Fiber or generate 11.17% return on investment over 90 days.

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

Hung Chou Fiber  vs.  Tung Ho Textile

Hung Chou Fiber

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hung Chou Fiber are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hung Chou may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tung Ho Textile

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tung Ho Textile are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tung Ho may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hung Chou and Tung Ho

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

The idea behind Hung Chou Fiber and Tung Ho Textile 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.