Correlation Between Chung Hwa and Yageo Corp

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

Diversification Opportunities for Chung Hwa and Yageo Corp

0.38

Correlation Coefficient

Chung Hwa  Yageo Corp

Weak diversification

The 3 months correlation between Chung and Yageo is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Chemical and Yageo Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yageo Corp 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 Yageo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yageo Corp has no effect on the direction of Chung Hwa i.e., Chung Hwa and Yageo Corp go up and down completely randomly.

Pair Corralation between Chung Hwa and Yageo Corp

Assuming the 90 days trading horizon Chung Hwa Chemical is expected to under-perform the Yageo Corp. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Chemical is 1.12 times less risky than Yageo Corp. The stock trades about -0.06 of its potential returns per unit of risk. The Yageo Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  53,600  in Yageo Corp on December 29, 2024 and sell it today you would lose (2,600) from holding Yageo Corp or give up 4.85% of portfolio value over 90 days.

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

Chung Hwa Chemical  vs.  Yageo Corp

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 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.

Yageo Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yageo Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yageo Corp 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 Yageo Corp

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

The idea behind Chung Hwa Chemical and Yageo 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.

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.