Correlation Between Hua Nan and Yong Shun

Can any of the company-specific risk be diversified away by investing in both Hua Nan and Yong Shun 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 Yong Shun 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 Yong Shun Chemical, you can compare the effects of market volatilities on Hua Nan and Yong Shun 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 Yong Shun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Nan and Yong Shun.

Diversification Opportunities for Hua Nan and Yong Shun

-0.26

Correlation Coefficient

Hua Nan  Yong Shun

Very good diversification

The 3 months correlation between Hua and Yong is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Hua Nan Financial and Yong Shun Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yong Shun Chemical 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 Yong Shun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yong Shun Chemical has no effect on the direction of Hua Nan i.e., Hua Nan and Yong Shun go up and down completely randomly.

Pair Corralation between Hua Nan and Yong Shun

Assuming the 90 days trading horizon Hua Nan Financial is expected to generate 0.59 times more return on investment than Yong Shun. However, Hua Nan Financial is 1.69 times less risky than Yong Shun. It trades about 0.05 of its potential returns per unit of risk. Yong Shun Chemical is currently generating about 0.02 per unit of risk. If you would invest  2,198  in Hua Nan Financial on September 14, 2024 and sell it today you would earn a total of  522.00  from holding Hua Nan Financial or generate 23.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Hua Nan Financial  vs.  Yong Shun Chemical

Hua Nan Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Nan Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hua Nan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Yong Shun Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yong Shun Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yong Shun 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 Yong Shun

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

The idea behind Hua Nan Financial and Yong Shun Chemical 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.