Correlation Between Tung Ho and Hung Chou

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

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

Diversification Opportunities for Tung Ho and Hung Chou

0.79

Correlation Coefficient

Tung Ho  Hung Chou

Poor diversification

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

Pair Corralation between Tung Ho and Hung Chou

Assuming the 90 days trading horizon Tung Ho Textile is expected to generate 0.98 times more return on investment than Hung Chou. However, Tung Ho Textile is 1.02 times less risky than Hung Chou. It trades about 0.13 of its potential returns per unit of risk. Hung Chou Fiber is currently generating about 0.04 per unit of risk. If you would invest  2,360  in Tung Ho Textile on October 8, 2024 and sell it today you would earn a total of  125.00  from holding Tung Ho Textile or generate 5.3% return on investment over 90 days.

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

Tung Ho Textile  vs.  Hung Chou Fiber

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.

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.

Pair Trading with Tung Ho and Hung Chou

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

The idea behind Tung Ho Textile and Hung Chou Fiber 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.