Correlation Between Tung Ho and Johnson Chemical

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

By analyzing existing cross correlation between Tung Ho Steel and Johnson Chemical Pharmaceutical, you can compare the effects of market volatilities on Tung Ho and Johnson Chemical 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 Tung Ho with a short position of Johnson Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tung Ho and Johnson Chemical.

Diversification Opportunities for Tung Ho and Johnson Chemical

0.74

Correlation Coefficient

Tung Ho  Johnson Chemical

Poor diversification

The 3 months correlation between Tung and Johnson is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Tung Ho Steel and Johnson Chemical Pharmaceutica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Chemical Pha and Tung Ho 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 Tung Ho Steel are associated (or correlated) with Johnson Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Chemical Pha has no effect on the direction of Tung Ho i.e., Tung Ho and Johnson Chemical go up and down completely randomly.

Pair Corralation between Tung Ho and Johnson Chemical

Assuming the 90 days trading horizon Tung Ho is expected to generate 1.11 times less return on investment than Johnson Chemical. But when comparing it to its historical volatility, Tung Ho Steel is 1.36 times less risky than Johnson Chemical. It trades about 0.06 of its potential returns per unit of risk. Johnson Chemical Pharmaceutical is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,160  in Johnson Chemical Pharmaceutical on December 23, 2024 and sell it today you would earn a total of  340.00  from holding Johnson Chemical Pharmaceutical or generate 4.75% return on investment over 90 days.

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

Tung Ho Steel  vs.  Johnson Chemical Pharmaceutica

Tung Ho Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tung Ho Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Tung Ho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Johnson Chemical Pha

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Chemical Pharmaceutical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Johnson Chemical 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 Tung Ho and Johnson Chemical

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

The idea behind Tung Ho Steel and Johnson Chemical Pharmaceutical 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.