Correlation Between Nankang Rubber and Chung Hwa
Can any of the company-specific risk be diversified away by investing in both Nankang Rubber and Chung Hwa 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 Nankang Rubber and Chung Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nankang Rubber Tire and Chung Hwa Pulp, you can compare the effects of market volatilities on Nankang Rubber and Chung Hwa 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 Nankang Rubber with a short position of Chung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nankang Rubber and Chung Hwa.
Diversification Opportunities for Nankang Rubber and Chung Hwa
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nankang and Chung is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Nankang Rubber Tire and Chung Hwa Pulp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hwa Pulp and Nankang Rubber 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 Nankang Rubber Tire are associated (or correlated) with Chung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hwa Pulp has no effect on the direction of Nankang Rubber i.e., Nankang Rubber and Chung Hwa go up and down completely randomly.
Pair Corralation between Nankang Rubber and Chung Hwa
Assuming the 90 days trading horizon Nankang Rubber Tire is expected to under-perform the Chung Hwa. But the stock apears to be less risky and, when comparing its historical volatility, Nankang Rubber Tire is 1.08 times less risky than Chung Hwa. The stock trades about -0.16 of its potential returns per unit of risk. The Chung Hwa Pulp is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 1,660 in Chung Hwa Pulp on December 29, 2024 and sell it today you would lose (125.00) from holding Chung Hwa Pulp or give up 7.53% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Nankang Rubber Tire vs. Chung Hwa Pulp
Performance |
Timeline |
Nankang Rubber Tire |
Chung Hwa Pulp |
Nankang Rubber and Chung Hwa Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nankang Rubber and Chung Hwa
The main advantage of trading using opposite Nankang Rubber and Chung Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nankang Rubber position performs unexpectedly, Chung Hwa 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 Chung Hwa will offset losses from the drop in Chung Hwa's long position.Nankang Rubber vs. Yulon Motor Co | Nankang Rubber vs. Federal Corp | Nankang Rubber vs. Kenda Rubber Industrial | Nankang Rubber vs. Taiwan Glass Ind |
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Check out your portfolio center.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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