Correlation Between Nan Ya and Chung Hwa
Can any of the company-specific risk be diversified away by investing in both Nan Ya and Chung Hwa 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 Nan Ya and Chung Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nan Ya Plastics and Chung Hwa Pulp, you can compare the effects of market volatilities on Nan Ya and Chung Hwa 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 Nan Ya with a short position of Chung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nan Ya and Chung Hwa.
Diversification Opportunities for Nan Ya and Chung Hwa
Poor diversification
The 3 months correlation between Nan and Chung is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Nan Ya Plastics and Chung Hwa Pulp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hwa Pulp and Nan Ya 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 Nan Ya Plastics are associated (or correlated) with Chung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hwa Pulp has no effect on the direction of Nan Ya i.e., Nan Ya and Chung Hwa go up and down completely randomly.
Pair Corralation between Nan Ya and Chung Hwa
Assuming the 90 days trading horizon Nan Ya Plastics is expected to under-perform the Chung Hwa. In addition to that, Nan Ya is 1.38 times more volatile than Chung Hwa Pulp. It trades about -0.19 of its total potential returns per unit of risk. Chung Hwa Pulp is currently generating about -0.13 per unit of volatility. If you would invest 1,855 in Chung Hwa Pulp on September 1, 2024 and sell it today you would lose (70.00) from holding Chung Hwa Pulp or give up 3.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Nan Ya Plastics vs. Chung Hwa Pulp
Performance |
| Timeline |
| Nan Ya Plastics |
| Chung Hwa Pulp |
Nan Ya and Chung Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nan Ya and Chung Hwa
The main advantage of trading using opposite Nan Ya and Chung Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nan Ya position performs unexpectedly, Chung Hwa 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 Chung Hwa will offset losses from the drop in Chung Hwa's long position.| Nan Ya vs. Formosa Plastics Corp | Nan Ya vs. Formosa Chemicals Fibre | Nan Ya vs. China Steel Corp | Nan Ya vs. Formosa Petrochemical Corp |
| Chung Hwa vs. Basso Industry Corp | Chung Hwa vs. Chung Hsin Electric Machinery | Chung Hwa vs. TYC Brother Industrial | Chung Hwa vs. TECO Electric Machinery |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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