Correlation Between Chunghwa Chemical and Abnova Taiwan

Can any of the company-specific risk be diversified away by investing in both Chunghwa Chemical and Abnova Taiwan 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 Chunghwa Chemical and Abnova Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chunghwa Chemical Synthesis and Abnova Taiwan Corp, you can compare the effects of market volatilities on Chunghwa Chemical and Abnova Taiwan 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 Chunghwa Chemical with a short position of Abnova Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Chemical and Abnova Taiwan.

Diversification Opportunities for Chunghwa Chemical and Abnova Taiwan

0.86

Correlation Coefficient

Chunghwa Chemical  Abnova Taiwan

Very poor diversification

The 3 months correlation between Chunghwa and Abnova is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Chemical Synthesis and Abnova Taiwan Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abnova Taiwan Corp and Chunghwa Chemical 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 Chunghwa Chemical Synthesis are associated (or correlated) with Abnova Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abnova Taiwan Corp has no effect on the direction of Chunghwa Chemical i.e., Chunghwa Chemical and Abnova Taiwan go up and down completely randomly.

Pair Corralation between Chunghwa Chemical and Abnova Taiwan

Assuming the 90 days trading horizon Chunghwa Chemical Synthesis is expected to under-perform the Abnova Taiwan. In addition to that, Chunghwa Chemical is 2.12 times more volatile than Abnova Taiwan Corp. It trades about -0.28 of its total potential returns per unit of risk. Abnova Taiwan Corp is currently generating about -0.18 per unit of volatility. If you would invest  3,025  in Abnova Taiwan Corp on September 14, 2024 and sell it today you would lose (195.00) from holding Abnova Taiwan Corp or give up 6.45% of portfolio value over 90 days.

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

Chunghwa Chemical Synthesis  vs.  Abnova Taiwan Corp

Chunghwa Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Abnova Taiwan Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abnova Taiwan Corp 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.

Pair Trading with Chunghwa Chemical and Abnova Taiwan

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

The idea behind Chunghwa Chemical Synthesis and Abnova Taiwan 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.