Correlation Between Home Product and Hwa Fong

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

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

Diversification Opportunities for Home Product and Hwa Fong

0.67

Correlation Coefficient

Home Product  Hwa Fong

Poor diversification

The 3 months correlation between Home and Hwa is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Home Product Center and Hwa Fong Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwa Fong Rubber and Home Product 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 Home Product Center are associated (or correlated) with Hwa Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwa Fong Rubber has no effect on the direction of Home Product i.e., Home Product and Hwa Fong go up and down completely randomly.

Pair Corralation between Home Product and Hwa Fong

Assuming the 90 days trading horizon Home Product Center is expected to under-perform the Hwa Fong. But the stock apears to be less risky and, when comparing its historical volatility, Home Product Center is 31.5 times less risky than Hwa Fong. The stock trades about -0.05 of its potential returns per unit of risk. The Hwa Fong Rubber is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  391.00  in Hwa Fong Rubber on September 12, 2024 and sell it today you would earn a total of  23.00  from holding Hwa Fong Rubber or generate 5.88% return on investment over 90 days.

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

Home Product Center  vs.  Hwa Fong Rubber

Home Product Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Product Center has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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.

Pair Trading with Home Product and Hwa Fong

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

The idea behind Home Product Center and Hwa Fong Rubber 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.