Correlation Between China Bills and Chang Hwa

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Can any of the company-specific risk be diversified away by investing in both China Bills and Chang 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 China Bills and Chang Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Bills Finance and Chang Hwa Commercial, you can compare the effects of market volatilities on China Bills and Chang 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 China Bills with a short position of Chang Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Bills and Chang Hwa.

Diversification Opportunities for China Bills and Chang Hwa

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between China and Chang is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Bills Finance and Chang Hwa Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chang Hwa Commercial and China Bills 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 China Bills Finance are associated (or correlated) with Chang Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chang Hwa Commercial has no effect on the direction of China Bills i.e., China Bills and Chang Hwa go up and down completely randomly.

Pair Corralation between China Bills and Chang Hwa

Assuming the 90 days trading horizon China Bills Finance is expected to generate 0.86 times more return on investment than Chang Hwa. However, China Bills Finance is 1.16 times less risky than Chang Hwa. It trades about 0.14 of its potential returns per unit of risk. Chang Hwa Commercial is currently generating about 0.03 per unit of risk. If you would invest  1,505  in China Bills Finance on September 19, 2024 and sell it today you would earn a total of  20.00  from holding China Bills Finance or generate 1.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

China Bills Finance  vs.  Chang Hwa Commercial

 Performance 
       Timeline  
China Bills Finance 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in China Bills Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Bills is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Chang Hwa Commercial 

Risk-Adjusted Performance

0 of 100

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

China Bills and Chang Hwa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Bills and Chang Hwa

The main advantage of trading using opposite China Bills and Chang Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Bills position performs unexpectedly, Chang 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 Chang Hwa will offset losses from the drop in Chang Hwa's long position.
The idea behind China Bills Finance and Chang Hwa Commercial 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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