Correlation Between Lung Hwa and Hwa Fong

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

By analyzing existing cross correlation between Lung Hwa Electronics and Hwa Fong Rubber, you can compare the effects of market volatilities on Lung Hwa and Hwa Fong 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 Lung Hwa with a short position of Hwa Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lung Hwa and Hwa Fong.

Diversification Opportunities for Lung Hwa and Hwa Fong

-0.61

Correlation Coefficient

Lung Hwa  Hwa Fong

Excellent diversification

The 3 months correlation between Lung and Hwa is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lung Hwa Electronics and Hwa Fong Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwa Fong Rubber and Lung 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 Lung Hwa Electronics are associated (or correlated) with Hwa Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwa Fong Rubber has no effect on the direction of Lung Hwa i.e., Lung Hwa and Hwa Fong go up and down completely randomly.

Pair Corralation between Lung Hwa and Hwa Fong

Assuming the 90 days trading horizon Lung Hwa Electronics is expected to generate 4.16 times more return on investment than Hwa Fong. However, Lung Hwa is 4.16 times more volatile than Hwa Fong Rubber. It trades about 0.05 of its potential returns per unit of risk. Hwa Fong Rubber is currently generating about -0.07 per unit of risk. If you would invest  6,060  in Lung Hwa Electronics on September 15, 2024 and sell it today you would earn a total of  440.00  from holding Lung Hwa Electronics or generate 7.26% return on investment over 90 days.

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

Lung Hwa Electronics  vs.  Hwa Fong Rubber

Lung Hwa Electronics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lung Hwa Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lung Hwa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hwa Fong Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hwa Fong Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hwa Fong 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 Lung Hwa and Hwa Fong

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

The idea behind Lung Hwa Electronics and Hwa Fong Rubber 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.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.