Correlation Between Long Bon and Chung Fu

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

By analyzing existing cross correlation between Long Bon International and Chung Fu Tex International, you can compare the effects of market volatilities on Long Bon and Chung Fu 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 Long Bon with a short position of Chung Fu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Bon and Chung Fu.

Diversification Opportunities for Long Bon and Chung Fu

0.29

Correlation Coefficient

Long Bon  Chung Fu

Modest diversification

The 3 months correlation between Long and Chung is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Long Bon International and Chung Fu Tex International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Fu Tex and Long Bon 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 Long Bon International are associated (or correlated) with Chung Fu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Fu Tex has no effect on the direction of Long Bon i.e., Long Bon and Chung Fu go up and down completely randomly.

Pair Corralation between Long Bon and Chung Fu

Assuming the 90 days trading horizon Long Bon International is expected to generate 0.28 times more return on investment than Chung Fu. However, Long Bon International is 3.53 times less risky than Chung Fu. It trades about -0.44 of its potential returns per unit of risk. Chung Fu Tex International is currently generating about -0.42 per unit of risk. If you would invest  2,165  in Long Bon International on September 24, 2024 and sell it today you would lose (180.00) from holding Long Bon International or give up 8.31% of portfolio value over 90 days.

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

Long Bon International  vs.  Chung Fu Tex International

Long Bon International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Long Bon International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Long Bon is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chung Fu Tex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Fu Tex International 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.

Pair Trading with Long Bon and Chung Fu

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

The idea behind Long Bon International and Chung Fu Tex International 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.