Correlation Between Chung Hwa and Oriental Union

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

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

Diversification Opportunities for Chung Hwa and Oriental Union

0.88

Correlation Coefficient

Chung Hwa  Oriental Union

Very poor diversification

The 3 months correlation between Chung and Oriental is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Chemical and Oriental Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Union Chemical and Chung 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 Chung Hwa Chemical are associated (or correlated) with Oriental Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Union Chemical has no effect on the direction of Chung Hwa i.e., Chung Hwa and Oriental Union go up and down completely randomly.

Pair Corralation between Chung Hwa and Oriental Union

Assuming the 90 days trading horizon Chung Hwa Chemical is expected to under-perform the Oriental Union. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Chemical is 1.27 times less risky than Oriental Union. The stock trades about -0.13 of its potential returns per unit of risk. The Oriental Union Chemical is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,615  in Oriental Union Chemical on November 28, 2024 and sell it today you would lose (55.00) from holding Oriental Union Chemical or give up 3.41% of portfolio value over 90 days.

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

Chung Hwa Chemical  vs.  Oriental Union Chemical

Chung Hwa Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chung Hwa Chemical 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 March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Oriental Union Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oriental Union Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Oriental Union 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 Chung Hwa and Oriental Union

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

The idea behind Chung Hwa Chemical and Oriental Union Chemical 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.