Correlation Between GM and Chunghwa Chemical
Can any of the company-specific risk be diversified away by investing in both GM and Chunghwa Chemical 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 GM and Chunghwa Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Chunghwa Chemical Synthesis, you can compare the effects of market volatilities on GM and Chunghwa Chemical 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 GM with a short position of Chunghwa Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Chunghwa Chemical.
Diversification Opportunities for GM and Chunghwa Chemical
-0.59 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Chunghwa is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Chunghwa Chemical Synthesis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Chemical and GM 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 General Motors are associated (or correlated) with Chunghwa Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Chemical has no effect on the direction of GM i.e., GM and Chunghwa Chemical go up and down completely randomly.
Pair Corralation between GM and Chunghwa Chemical
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.46 times more return on investment than Chunghwa Chemical. However, GM is 1.46 times more volatile than Chunghwa Chemical Synthesis. It trades about 0.05 of its potential returns per unit of risk. Chunghwa Chemical Synthesis is currently generating about -0.18 per unit of risk. If you would invest 4,718 in General Motors on September 15, 2024 and sell it today you would earn a total of 535.00 from holding General Motors or generate 11.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 98.44% |
Values | Daily Returns |
General Motors vs. Chunghwa Chemical Synthesis
Performance |
Timeline |
General Motors |
Chunghwa Chemical |
GM and Chunghwa Chemical Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and Chunghwa Chemical
The main advantage of trading using opposite GM and Chunghwa Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Chunghwa Chemical 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 Chunghwa Chemical will offset losses from the drop in Chunghwa Chemical's long position.The idea behind General Motors and Chunghwa Chemical Synthesis 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.Chunghwa Chemical vs. Sinphar Pharmaceutical Co | Chunghwa Chemical vs. Abnova Taiwan Corp | Chunghwa Chemical vs. YungShin Global Holding | Chunghwa Chemical vs. Phytohealth Corp |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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