Correlation Between Tong Hwa and Te Chang

Can any of the company-specific risk be diversified away by investing in both Tong Hwa and Te Chang 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 Te Chang 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 Te Chang Construction, you can compare the effects of market volatilities on Tong Hwa and Te Chang 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 Te Chang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Hwa and Te Chang.

Diversification Opportunities for Tong Hwa and Te Chang

-0.66

Correlation Coefficient

Tong Hwa  Te Chang

Excellent diversification

The 3 months correlation between Tong and 5511 is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tong Hwa Synthetic Fiber and Te Chang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Te Chang Construction 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 Te Chang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Te Chang Construction has no effect on the direction of Tong Hwa i.e., Tong Hwa and Te Chang go up and down completely randomly.

Pair Corralation between Tong Hwa and Te Chang

Assuming the 90 days trading horizon Tong Hwa Synthetic Fiber is expected to under-perform the Te Chang. In addition to that, Tong Hwa is 2.17 times more volatile than Te Chang Construction. It trades about -0.1 of its total potential returns per unit of risk. Te Chang Construction is currently generating about 0.1 per unit of volatility. If you would invest  5,930  in Te Chang Construction on October 23, 2024 and sell it today you would earn a total of  330.00  from holding Te Chang Construction or generate 5.56% return on investment over 90 days.

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

Tong Hwa Synthetic Fiber  vs.  Te Chang Construction

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 latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Te Chang Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Te Chang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Tong Hwa and Te Chang

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

The idea behind Tong Hwa Synthetic Fiber and Te Chang Construction 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.