Correlation Between Hwa Fong and MC Group

Can any of the company-specific risk be diversified away by investing in both Hwa Fong and MC Group 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 MC Group 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 MC Group Public, you can compare the effects of market volatilities on Hwa Fong and MC Group 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 MC Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hwa Fong and MC Group.

Diversification Opportunities for Hwa Fong and MC Group

-0.34

Correlation Coefficient

Hwa Fong  MC Group

Very good diversification

The 3 months correlation between Hwa and MC Group is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Hwa Fong Rubber and MC Group Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MC Group Public 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 MC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MC Group Public has no effect on the direction of Hwa Fong i.e., Hwa Fong and MC Group go up and down completely randomly.

Pair Corralation between Hwa Fong and MC Group

Assuming the 90 days trading horizon Hwa Fong Rubber is expected to under-perform the MC Group. But the stock apears to be less risky and, when comparing its historical volatility, Hwa Fong Rubber is 1.85 times less risky than MC Group. The stock trades about -0.19 of its potential returns per unit of risk. The MC Group Public is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,015  in MC Group Public on December 28, 2024 and sell it today you would lose (20.00) from holding MC Group Public or give up 1.97% of portfolio value over 90 days.

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

Hwa Fong Rubber  vs.  MC Group Public

Hwa Fong Rubber

Risk-Adjusted Performance

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 weak 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.

MC Group Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days MC Group Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, MC Group is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Hwa Fong and MC Group

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

The idea behind Hwa Fong Rubber and MC Group Public 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.