Correlation Between Tung Ho and Tong Hwa

Can any of the company-specific risk be diversified away by investing in both Tung Ho and Tong 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 Tung Ho and Tong Hwa 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 Tong Hwa Synthetic Fiber, you can compare the effects of market volatilities on Tung Ho and Tong 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 Tung Ho with a short position of Tong Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tung Ho and Tong Hwa.

Diversification Opportunities for Tung Ho and Tong Hwa

-0.45

Correlation Coefficient

Tung Ho  Tong Hwa

Very good diversification

The 3 months correlation between Tung and Tong is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Tung Ho Textile and Tong Hwa Synthetic Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Hwa Synthetic 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 Tong Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Hwa Synthetic has no effect on the direction of Tung Ho i.e., Tung Ho and Tong Hwa go up and down completely randomly.

Pair Corralation between Tung Ho and Tong Hwa

Assuming the 90 days trading horizon Tung Ho is expected to generate 2.2 times less return on investment than Tong Hwa. But when comparing it to its historical volatility, Tung Ho Textile is 1.54 times less risky than Tong Hwa. It trades about 0.05 of its potential returns per unit of risk. Tong Hwa Synthetic Fiber is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,400  in Tong Hwa Synthetic Fiber on September 29, 2024 and sell it today you would earn a total of  1,430  from holding Tong Hwa Synthetic Fiber or generate 102.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Tung Ho Textile  vs.  Tong Hwa Synthetic Fiber

Tung Ho Textile

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tung Ho Textile are ranked lower than 6 (%) 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 January 2025.

Tong Hwa Synthetic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tong Hwa Synthetic Fiber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Tung Ho and Tong Hwa

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

The idea behind Tung Ho Textile and Tong Hwa Synthetic 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.