Correlation Between Chung Hwa and Advanced Echem

Can any of the company-specific risk be diversified away by investing in both Chung Hwa and Advanced Echem 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 Advanced Echem 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 Advanced Echem Materials, you can compare the effects of market volatilities on Chung Hwa and Advanced Echem 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 Advanced Echem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and Advanced Echem.

Diversification Opportunities for Chung Hwa and Advanced Echem

-0.71

Correlation Coefficient

Chung Hwa  Advanced Echem

Pay attention - limited upside

The 3 months correlation between Chung and Advanced is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and Advanced Echem Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Echem Materials 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 Advanced Echem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Echem Materials has no effect on the direction of Chung Hwa i.e., Chung Hwa and Advanced Echem go up and down completely randomly.

Pair Corralation between Chung Hwa and Advanced Echem

Assuming the 90 days trading horizon Chung Hwa Food is expected to generate 0.25 times more return on investment than Advanced Echem. However, Chung Hwa Food is 4.02 times less risky than Advanced Echem. It trades about 0.12 of its potential returns per unit of risk. Advanced Echem Materials is currently generating about -0.09 per unit of risk. If you would invest  8,710  in Chung Hwa Food on December 25, 2024 and sell it today you would earn a total of  490.00  from holding Chung Hwa Food or generate 5.63% 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.  Advanced Echem Materials

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 9 (%) 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.

Advanced Echem Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Echem Materials 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 Advanced Echem

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

The idea behind Chung Hwa Food and Advanced Echem Materials 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.