Correlation Between Cheng Fwa and Rich Development

Can any of the company-specific risk be diversified away by investing in both Cheng Fwa and Rich Development 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 Cheng Fwa and Rich Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cheng Fwa Industrial and Rich Development Co, you can compare the effects of market volatilities on Cheng Fwa and Rich Development 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 Cheng Fwa with a short position of Rich Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Fwa and Rich Development.

Diversification Opportunities for Cheng Fwa and Rich Development

-0.65

Correlation Coefficient

Cheng Fwa  Rich Development

Excellent diversification

The 3 months correlation between Cheng and Rich is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Fwa Industrial and Rich Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rich Development and Cheng Fwa 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 Cheng Fwa Industrial are associated (or correlated) with Rich Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rich Development has no effect on the direction of Cheng Fwa i.e., Cheng Fwa and Rich Development go up and down completely randomly.

Pair Corralation between Cheng Fwa and Rich Development

Assuming the 90 days trading horizon Cheng Fwa Industrial is expected to generate 2.62 times more return on investment than Rich Development. However, Cheng Fwa is 2.62 times more volatile than Rich Development Co. It trades about 0.1 of its potential returns per unit of risk. Rich Development Co is currently generating about -0.15 per unit of risk. If you would invest  2,710  in Cheng Fwa Industrial on September 15, 2024 and sell it today you would earn a total of  520.00  from holding Cheng Fwa Industrial or generate 19.19% return on investment over 90 days.

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

Cheng Fwa Industrial  vs.  Rich Development Co

Cheng Fwa Industrial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Fwa Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Fwa showed solid returns over the last few months and may actually be approaching a breakup point.

Rich Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rich Development Co 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 Cheng Fwa and Rich Development

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

The idea behind Cheng Fwa Industrial and Rich Development Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.