Correlation Between Chung Lien and Far EasTone

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

By analyzing existing cross correlation between Chung Lien Transportation and Far EasTone Telecommunications, you can compare the effects of market volatilities on Chung Lien and Far EasTone 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 Chung Lien with a short position of Far EasTone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Lien and Far EasTone.

Diversification Opportunities for Chung Lien and Far EasTone

-0.2

Correlation Coefficient

Chung Lien  Far EasTone

Good diversification

The 3 months correlation between Chung and Far is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Chung Lien Transportation and Far EasTone Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far EasTone Telecomm and Chung Lien 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 Chung Lien Transportation are associated (or correlated) with Far EasTone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far EasTone Telecomm has no effect on the direction of Chung Lien i.e., Chung Lien and Far EasTone go up and down completely randomly.

Pair Corralation between Chung Lien and Far EasTone

Assuming the 90 days trading horizon Chung Lien Transportation is expected to under-perform the Far EasTone. In addition to that, Chung Lien is 1.2 times more volatile than Far EasTone Telecommunications. It trades about -0.01 of its total potential returns per unit of risk. Far EasTone Telecommunications is currently generating about 0.07 per unit of volatility. If you would invest  8,950  in Far EasTone Telecommunications on December 20, 2024 and sell it today you would earn a total of  300.00  from holding Far EasTone Telecommunications or generate 3.35% return on investment over 90 days.

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

Chung Lien Transportation  vs.  Far EasTone Telecommunications

Chung Lien Transportation

Risk-Adjusted Performance

Very Weak

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

Far EasTone Telecomm

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Far EasTone Telecommunications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Far EasTone 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 Chung Lien and Far EasTone

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

The idea behind Chung Lien Transportation and Far EasTone Telecommunications 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.