Correlation Between Chung Hwa and ADLINK Technology

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

Diversification Opportunities for Chung Hwa and ADLINK Technology

-0.27

Correlation Coefficient

Chung Hwa  ADLINK Technology

Very good diversification

The 3 months correlation between Chung and ADLINK is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Chemical and ADLINK Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADLINK Technology 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 ADLINK Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADLINK Technology has no effect on the direction of Chung Hwa i.e., Chung Hwa and ADLINK Technology go up and down completely randomly.

Pair Corralation between Chung Hwa and ADLINK Technology

Assuming the 90 days trading horizon Chung Hwa Chemical is expected to under-perform the ADLINK Technology. In addition to that, Chung Hwa is 1.73 times more volatile than ADLINK Technology. It trades about -0.05 of its total potential returns per unit of risk. ADLINK Technology is currently generating about 0.14 per unit of volatility. If you would invest  6,570  in ADLINK Technology on September 12, 2024 and sell it today you would earn a total of  1,040  from holding ADLINK Technology or generate 15.83% return on investment over 90 days.

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

Chung Hwa Chemical  vs.  ADLINK Technology

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 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.

ADLINK Technology

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADLINK Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ADLINK Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Hwa and ADLINK Technology

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

The idea behind Chung Hwa Chemical and ADLINK Technology 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.