Correlation Between Chung Hwa and Voltronic Power

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

Diversification Opportunities for Chung Hwa and Voltronic Power

0.7

Correlation Coefficient

Chung Hwa  Voltronic Power

Poor diversification

The 3 months correlation between Chung and Voltronic is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Chemical and Voltronic Power Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Voltronic Power Tech 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 Voltronic Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Voltronic Power Tech has no effect on the direction of Chung Hwa i.e., Chung Hwa and Voltronic Power go up and down completely randomly.

Pair Corralation between Chung Hwa and Voltronic Power

Assuming the 90 days trading horizon Chung Hwa Chemical is expected to under-perform the Voltronic Power. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Chemical is 1.04 times less risky than Voltronic Power. The stock trades about -0.02 of its potential returns per unit of risk. The Voltronic Power Technology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  205,000  in Voltronic Power Technology on September 12, 2024 and sell it today you would lose (10,500) from holding Voltronic Power Technology or give up 5.12% of portfolio value over 90 days.

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

Chung Hwa Chemical  vs.  Voltronic Power 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 fairly stable basic indicators, Chung Hwa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Voltronic Power Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Chung Hwa Chemical and Voltronic Power 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.