Correlation Between IBF Financial and Hua Nan

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

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

Diversification Opportunities for IBF Financial and Hua Nan

-0.47

Correlation Coefficient

IBF Financial  Hua Nan

Very good diversification

The 3 months correlation between IBF and Hua is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding IBF Financial Holdings and Hua Nan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Nan Financial and IBF Financial 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 IBF Financial Holdings are associated (or correlated) with Hua Nan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Nan Financial has no effect on the direction of IBF Financial i.e., IBF Financial and Hua Nan go up and down completely randomly.

Pair Corralation between IBF Financial and Hua Nan

Assuming the 90 days trading horizon IBF Financial Holdings is expected to under-perform the Hua Nan. In addition to that, IBF Financial is 1.14 times more volatile than Hua Nan Financial. It trades about -0.17 of its total potential returns per unit of risk. Hua Nan Financial is currently generating about -0.11 per unit of volatility. If you would invest  2,805  in Hua Nan Financial on December 5, 2024 and sell it today you would lose (45.00) from holding Hua Nan Financial or give up 1.6% of portfolio value over 90 days.

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

IBF Financial Holdings  vs.  Hua Nan Financial

IBF Financial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days IBF Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Hua Nan Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Nan Financial are ranked lower than 3 (%) 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.

Pair Trading with IBF Financial and Hua Nan

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

The idea behind IBF Financial Holdings and Hua Nan Financial 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.