Correlation Between Yong Shun and Chung Hwa

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

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

Diversification Opportunities for Yong Shun and Chung Hwa

0.85

Correlation Coefficient

Yong Shun  Chung Hwa

Very poor diversification

The 3 months correlation between Yong and Chung is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Yong Shun Chemical and Chung Hwa Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hwa Chemical and Yong Shun 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 Yong Shun Chemical are associated (or correlated) with Chung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hwa Chemical has no effect on the direction of Yong Shun i.e., Yong Shun and Chung Hwa go up and down completely randomly.

Pair Corralation between Yong Shun and Chung Hwa

Assuming the 90 days trading horizon Yong Shun Chemical is expected to generate 0.82 times more return on investment than Chung Hwa. However, Yong Shun Chemical is 1.23 times less risky than Chung Hwa. It trades about 0.0 of its potential returns per unit of risk. Chung Hwa Chemical is currently generating about -0.06 per unit of risk. If you would invest  1,640  in Yong Shun Chemical on September 13, 2024 and sell it today you would lose (35.00) from holding Yong Shun Chemical or give up 2.13% of portfolio value over 90 days.

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

Yong Shun Chemical  vs.  Chung Hwa Chemical

Yong Shun Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Chung Hwa Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Hwa Chemical 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.

Pair Trading with Yong Shun and Chung Hwa

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

The idea behind Yong Shun Chemical and Chung Hwa 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.