Correlation Between Taiwan Hon and Ching Feng

Can any of the company-specific risk be diversified away by investing in both Taiwan Hon and Ching Feng 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 Taiwan Hon and Ching Feng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Hon Chuan and Ching Feng Home, you can compare the effects of market volatilities on Taiwan Hon and Ching Feng 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 Taiwan Hon with a short position of Ching Feng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Hon and Ching Feng.

Diversification Opportunities for Taiwan Hon and Ching Feng

0.79

Correlation Coefficient

Taiwan Hon  Ching Feng

Poor diversification

The 3 months correlation between Taiwan and Ching is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Hon Chuan and Ching Feng Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ching Feng Home and Taiwan Hon 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 Taiwan Hon Chuan are associated (or correlated) with Ching Feng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ching Feng Home has no effect on the direction of Taiwan Hon i.e., Taiwan Hon and Ching Feng go up and down completely randomly.

Pair Corralation between Taiwan Hon and Ching Feng

Assuming the 90 days trading horizon Taiwan Hon is expected to generate 1.15 times less return on investment than Ching Feng. But when comparing it to its historical volatility, Taiwan Hon Chuan is 1.38 times less risky than Ching Feng. It trades about 0.04 of its potential returns per unit of risk. Ching Feng Home is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,915  in Ching Feng Home on December 29, 2024 and sell it today you would earn a total of  90.00  from holding Ching Feng Home or generate 3.09% return on investment over 90 days.

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

Taiwan Hon Chuan  vs.  Ching Feng Home

Taiwan Hon Chuan

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Hon is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Ching Feng Home

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ching Feng Home are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Ching Feng 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 Taiwan Hon and Ching Feng

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

The idea behind Taiwan Hon Chuan and Ching Feng Home 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.