Correlation Between Chung Hwa and Golden Biotechnology

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

Diversification Opportunities for Chung Hwa and Golden Biotechnology

0.19

Correlation Coefficient

Chung Hwa  Golden Biotechnology

Average diversification

The 3 months correlation between Chung and Golden is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Chemical and Golden Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Biotechnology 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 Golden Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Biotechnology has no effect on the direction of Chung Hwa i.e., Chung Hwa and Golden Biotechnology go up and down completely randomly.

Pair Corralation between Chung Hwa and Golden Biotechnology

Assuming the 90 days trading horizon Chung Hwa Chemical is expected to under-perform the Golden Biotechnology. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Chemical is 2.64 times less risky than Golden Biotechnology. The stock trades about -0.18 of its potential returns per unit of risk. The Golden Biotechnology is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Golden Biotechnology on October 16, 2024 and sell it today you would earn a total of  305.00  from holding Golden Biotechnology or generate 20.33% return on investment over 90 days.

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

Chung Hwa Chemical  vs.  Golden Biotechnology

Chung Hwa Chemical

Risk-Adjusted Performance

0 of 100

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

Golden Biotechnology

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Biotechnology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Golden Biotechnology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Hwa and Golden Biotechnology

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

The idea behind Chung Hwa Chemical and Golden Biotechnology 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.