Correlation Between Yong Shun and Hua Nan

Can any of the company-specific risk be diversified away by investing in both Yong Shun 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 Yong Shun and Hua Nan 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 Hua Nan Financial, you can compare the effects of market volatilities on Yong Shun 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 Yong Shun with a short position of Hua Nan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yong Shun and Hua Nan.

Diversification Opportunities for Yong Shun and Hua Nan

-0.3

Correlation Coefficient

Yong Shun  Hua Nan

Very good diversification

The 3 months correlation between Yong and Hua is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Yong Shun 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 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 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 Yong Shun i.e., Yong Shun and Hua Nan go up and down completely randomly.

Pair Corralation between Yong Shun and Hua Nan

Assuming the 90 days trading horizon Yong Shun Chemical is expected to under-perform the Hua Nan. In addition to that, Yong Shun is 2.83 times more volatile than Hua Nan Financial. It trades about -0.03 of its total potential returns per unit of risk. Hua Nan Financial is currently generating about 0.11 per unit of volatility. If you would invest  2,550  in Hua Nan Financial on September 15, 2024 and sell it today you would earn a total of  155.00  from holding Hua Nan Financial or generate 6.08% return on investment over 90 days.

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

Yong Shun Chemical  vs.  Hua Nan Financial

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.

Hua Nan Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Nan Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hua Nan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Yong Shun and Hua Nan

The main advantage of trading using opposite Yong Shun and Hua Nan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yong Shun 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 Yong Shun 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.