Correlation Between Pan Asia and Hua Nan

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

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

Diversification Opportunities for Pan Asia and Hua Nan

-0.19

Correlation Coefficient

Pan Asia  Hua Nan

Good diversification

The 3 months correlation between Pan and Hua is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Pan Asia Chemical 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 Pan Asia 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 Pan Asia Chemical 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 Pan Asia i.e., Pan Asia and Hua Nan go up and down completely randomly.

Pair Corralation between Pan Asia and Hua Nan

Assuming the 90 days trading horizon Pan Asia is expected to generate 1.2 times less return on investment than Hua Nan. In addition to that, Pan Asia is 1.11 times more volatile than Hua Nan Financial. It trades about 0.04 of its total potential returns per unit of risk. Hua Nan Financial is currently generating about 0.05 per unit of volatility. 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

Pan Asia Chemical  vs.  Hua Nan Financial

Pan Asia Chemical

Risk-Adjusted Performance

0 of 100

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 fairly stable basic indicators, Pan Asia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with Pan Asia and Hua Nan

The main advantage of trading using opposite Pan Asia and Hua Nan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan Asia 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 Pan Asia Chemical 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.