Correlation Between Tong Hwa and S Tech

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

By analyzing existing cross correlation between Tong Hwa Synthetic Fiber and S Tech Corp, you can compare the effects of market volatilities on Tong Hwa and S Tech 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 Tong Hwa with a short position of S Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Hwa and S Tech.

Diversification Opportunities for Tong Hwa and S Tech

0.85

Correlation Coefficient

Tong Hwa  S Tech

Very poor diversification

The 3 months correlation between Tong and 1584 is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Tong Hwa Synthetic Fiber and S Tech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on S Tech Corp and Tong Hwa 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 Tong Hwa Synthetic Fiber are associated (or correlated) with S Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of S Tech Corp has no effect on the direction of Tong Hwa i.e., Tong Hwa and S Tech go up and down completely randomly.

Pair Corralation between Tong Hwa and S Tech

Assuming the 90 days trading horizon Tong Hwa Synthetic Fiber is expected to generate 1.4 times more return on investment than S Tech. However, Tong Hwa is 1.4 times more volatile than S Tech Corp. It trades about -0.02 of its potential returns per unit of risk. S Tech Corp is currently generating about -0.04 per unit of risk. If you would invest  3,340  in Tong Hwa Synthetic Fiber on October 9, 2024 and sell it today you would lose (540.00) from holding Tong Hwa Synthetic Fiber or give up 16.17% of portfolio value over 90 days.

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

Tong Hwa Synthetic Fiber  vs.  S Tech Corp

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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

S Tech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days S Tech Corp 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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Tong Hwa and S Tech

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

The idea behind Tong Hwa Synthetic Fiber and S Tech Corp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.