Correlation Between Hwa Fong and Eastern Commercial

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

By analyzing existing cross correlation between Hwa Fong Rubber and Eastern Commercial Leasing, you can compare the effects of market volatilities on Hwa Fong and Eastern Commercial 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 Hwa Fong with a short position of Eastern Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hwa Fong and Eastern Commercial.

Diversification Opportunities for Hwa Fong and Eastern Commercial

-0.28

Correlation Coefficient

Hwa Fong  Eastern Commercial

Very good diversification

The 3 months correlation between Hwa and Eastern is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Hwa Fong Rubber and Eastern Commercial Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Commercial and Hwa Fong 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 Hwa Fong Rubber are associated (or correlated) with Eastern Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Commercial has no effect on the direction of Hwa Fong i.e., Hwa Fong and Eastern Commercial go up and down completely randomly.

Pair Corralation between Hwa Fong and Eastern Commercial

Assuming the 90 days trading horizon Hwa Fong Rubber is expected to under-perform the Eastern Commercial. But the stock apears to be less risky and, when comparing its historical volatility, Hwa Fong Rubber is 2.69 times less risky than Eastern Commercial. The stock trades about -0.13 of its potential returns per unit of risk. The Eastern Commercial Leasing is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  99.00  in Eastern Commercial Leasing on September 15, 2024 and sell it today you would earn a total of  7.00  from holding Eastern Commercial Leasing or generate 7.07% return on investment over 90 days.

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

Hwa Fong Rubber  vs.  Eastern Commercial Leasing

Hwa Fong Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hwa Fong Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Eastern Commercial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Commercial Leasing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Eastern Commercial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hwa Fong and Eastern Commercial

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

The idea behind Hwa Fong Rubber and Eastern Commercial Leasing 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.