Correlation Between Chung Fu and Chung Hwa

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

By analyzing existing cross correlation between Chung Fu Tex International and Chung Hwa Food, you can compare the effects of market volatilities on Chung Fu and Chung 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 Chung Fu with a short position of Chung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Fu and Chung Hwa.

Diversification Opportunities for Chung Fu and Chung Hwa

0.4

Correlation Coefficient

Chung Fu  Chung Hwa

Very weak diversification

The 3 months correlation between Chung and Chung is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Chung Fu Tex International and Chung Hwa Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hwa Food and Chung Fu 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 Chung Fu Tex International are associated (or correlated) with Chung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hwa Food has no effect on the direction of Chung Fu i.e., Chung Fu and Chung Hwa go up and down completely randomly.

Pair Corralation between Chung Fu and Chung Hwa

Assuming the 90 days trading horizon Chung Fu Tex International is expected to generate 4.12 times more return on investment than Chung Hwa. However, Chung Fu is 4.12 times more volatile than Chung Hwa Food. It trades about 0.14 of its potential returns per unit of risk. Chung Hwa Food is currently generating about 0.12 per unit of risk. If you would invest  3,395  in Chung Fu Tex International on December 27, 2024 and sell it today you would earn a total of  905.00  from holding Chung Fu Tex International or generate 26.66% return on investment over 90 days.

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

Chung Fu Tex International  vs.  Chung Hwa Food

Chung Fu Tex

Risk-Adjusted Performance

OK

Over the last 90 days Chung Fu Tex International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Chung Fu showed solid returns over the last few months and may actually be approaching a breakup point.

Chung Hwa Food

Risk-Adjusted Performance

OK

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

Pair Trading with Chung Fu and Chung Hwa

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

The idea behind Chung Fu Tex International and Chung Hwa Food 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.