Correlation Between Chung Hwa and Farglory Life

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

Diversification Opportunities for Chung Hwa and Farglory Life

0.28

Correlation Coefficient

Chung Hwa  Farglory Life

Modest diversification

The 3 months correlation between Chung and Farglory is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and Farglory Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farglory Life Insurance 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 Farglory Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farglory Life Insurance has no effect on the direction of Chung Hwa i.e., Chung Hwa and Farglory Life go up and down completely randomly.

Pair Corralation between Chung Hwa and Farglory Life

Assuming the 90 days trading horizon Chung Hwa Food is expected to under-perform the Farglory Life. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Food is 4.1 times less risky than Farglory Life. The stock trades about -0.21 of its potential returns per unit of risk. The Farglory Life Insurance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,670  in Farglory Life Insurance on September 22, 2024 and sell it today you would earn a total of  40.00  from holding Farglory Life Insurance or generate 2.4% return on investment over 90 days.

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

Chung Hwa Food  vs.  Farglory Life Insurance

Chung Hwa Food

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Hwa Food has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chung Hwa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Farglory Life Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farglory Life Insurance are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Farglory Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Hwa and Farglory Life

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

The idea behind Chung Hwa Food and Farglory Life Insurance 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.