Correlation Between Hua Nan and ESUN Financial

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

By analyzing existing cross correlation between Hua Nan Financial and ESUN Financial Holding, you can compare the effects of market volatilities on Hua Nan and ESUN Financial 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 Hua Nan with a short position of ESUN Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Nan and ESUN Financial.

Diversification Opportunities for Hua Nan and ESUN Financial

0.08

Correlation Coefficient

Hua Nan  ESUN Financial

Significant diversification

The 3 months correlation between Hua and ESUN is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hua Nan Financial and ESUN Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESUN Financial Holding and Hua Nan 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 Hua Nan Financial are associated (or correlated) with ESUN Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESUN Financial Holding has no effect on the direction of Hua Nan i.e., Hua Nan and ESUN Financial go up and down completely randomly.

Pair Corralation between Hua Nan and ESUN Financial

Assuming the 90 days trading horizon Hua Nan Financial is expected to generate 0.9 times more return on investment than ESUN Financial. However, Hua Nan Financial is 1.11 times less risky than ESUN Financial. It trades about 0.11 of its potential returns per unit of risk. ESUN Financial Holding is currently generating about -0.02 per unit of risk. If you would invest  2,550  in Hua Nan Financial on September 16, 2024 and sell it today you would earn a total of  155.00  from holding Hua Nan Financial or generate 6.08% return on investment over 90 days.

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

Hua Nan Financial  vs.  ESUN Financial Holding

Hua Nan Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Nan Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hua Nan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ESUN Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESUN Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ESUN Financial 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 Hua Nan and ESUN Financial

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

The idea behind Hua Nan Financial and ESUN Financial Holding 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.