Correlation Between Johnson Chemical and Chung Hwa

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

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

Diversification Opportunities for Johnson Chemical and Chung Hwa

-0.18

Correlation Coefficient

Johnson Chemical  Chung Hwa

Good diversification

The 3 months correlation between Johnson and Chung is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Chemical Pharmaceutica 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 Johnson Chemical 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 Johnson Chemical Pharmaceutical 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 Johnson Chemical i.e., Johnson Chemical and Chung Hwa go up and down completely randomly.

Pair Corralation between Johnson Chemical and Chung Hwa

Assuming the 90 days trading horizon Johnson Chemical is expected to generate 2.28 times less return on investment than Chung Hwa. But when comparing it to its historical volatility, Johnson Chemical Pharmaceutical is 1.68 times less risky than Chung Hwa. It trades about 0.01 of its potential returns per unit of risk. Chung Hwa Chemical is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,385  in Chung Hwa Chemical on September 5, 2024 and sell it today you would earn a total of  15.00  from holding Chung Hwa Chemical or generate 0.44% return on investment over 90 days.

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

Johnson Chemical Pharmaceutica  vs.  Chung Hwa Chemical

Johnson Chemical Pha

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Chemical Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Johnson Chemical 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

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chung Hwa Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Johnson Chemical and Chung Hwa

The main advantage of trading using opposite Johnson Chemical and Chung Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Chemical 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 Johnson Chemical Pharmaceutical 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..