Correlation Between Nan Yang and Tong Hwa
Can any of the company-specific risk be diversified away by investing in both Nan Yang and Tong 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 Yang and Tong Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nan Yang Dyeing and Tong Hwa Synthetic Fiber, you can compare the effects of market volatilities on Nan Yang and Tong 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 Yang with a short position of Tong Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nan Yang and Tong Hwa.
Diversification Opportunities for Nan Yang and Tong Hwa
Good diversification
The 3 months correlation between Nan and Tong is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Nan Yang Dyeing and Tong Hwa Synthetic Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Hwa Synthetic and Nan Yang 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 Yang Dyeing are associated (or correlated) with Tong Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Hwa Synthetic has no effect on the direction of Nan Yang i.e., Nan Yang and Tong Hwa go up and down completely randomly.
Pair Corralation between Nan Yang and Tong Hwa
Assuming the 90 days trading horizon Nan Yang Dyeing is expected to generate 0.52 times more return on investment than Tong Hwa. However, Nan Yang Dyeing is 1.93 times less risky than Tong Hwa. It trades about -0.08 of its potential returns per unit of risk. Tong Hwa Synthetic Fiber is currently generating about -0.06 per unit of risk. If you would invest 3,545 in Nan Yang Dyeing on November 3, 2024 and sell it today you would lose (35.00) from holding Nan Yang Dyeing or give up 0.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nan Yang Dyeing vs. Tong Hwa Synthetic Fiber
Performance |
| Timeline |
| Nan Yang Dyeing |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tong Hwa Synthetic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Nan Yang and Tong Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nan Yang and Tong Hwa
The main advantage of trading using opposite Nan Yang and Tong Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nan Yang position performs unexpectedly, Tong 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 Tong Hwa will offset losses from the drop in Tong Hwa's long position.The idea behind Nan Yang Dyeing and Tong Hwa Synthetic Fiber 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.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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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