Correlation Between Chung Hwa and Pan Asia

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

By analyzing existing cross correlation between Chung Hwa Food and Pan Asia Chemical, you can compare the effects of market volatilities on Chung Hwa and Pan Asia 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 Chung Hwa with a short position of Pan Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and Pan Asia.

Diversification Opportunities for Chung Hwa and Pan Asia

-0.75

Correlation Coefficient

Chung Hwa  Pan Asia

Pay attention - limited upside

The 3 months correlation between Chung and Pan is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and Pan Asia Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Asia Chemical and Chung Hwa 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 Chung Hwa Food are associated (or correlated) with Pan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Asia Chemical has no effect on the direction of Chung Hwa i.e., Chung Hwa and Pan Asia go up and down completely randomly.

Pair Corralation between Chung Hwa and Pan Asia

Assuming the 90 days trading horizon Chung Hwa Food is expected to generate 0.53 times more return on investment than Pan Asia. However, Chung Hwa Food is 1.9 times less risky than Pan Asia. It trades about 0.13 of its potential returns per unit of risk. Pan Asia Chemical is currently generating about -0.17 per unit of risk. If you would invest  8,770  in Chung Hwa Food on December 27, 2024 and sell it today you would earn a total of  530.00  from holding Chung Hwa Food or generate 6.04% return on investment over 90 days.

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

Chung Hwa Food  vs.  Pan Asia Chemical

Chung Hwa Food

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chung Hwa Food are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chung Hwa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pan Asia Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pan Asia Chemical 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 April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Chung Hwa and Pan Asia

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

The idea behind Chung Hwa Food and Pan Asia 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.