Correlation Between Tong Hwa and Cathay Chemical
Can any of the company-specific risk be diversified away by investing in both Tong Hwa and Cathay Chemical 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 Tong Hwa and Cathay Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tong Hwa Synthetic Fiber and Cathay Chemical Works, you can compare the effects of market volatilities on Tong Hwa and Cathay Chemical 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 Tong Hwa with a short position of Cathay Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Hwa and Cathay Chemical.
Diversification Opportunities for Tong Hwa and Cathay Chemical
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tong and Cathay is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tong Hwa Synthetic Fiber and Cathay Chemical Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Chemical Works and Tong Hwa 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 Tong Hwa Synthetic Fiber are associated (or correlated) with Cathay Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Chemical Works has no effect on the direction of Tong Hwa i.e., Tong Hwa and Cathay Chemical go up and down completely randomly.
Pair Corralation between Tong Hwa and Cathay Chemical
Assuming the 90 days trading horizon Tong Hwa Synthetic Fiber is expected to under-perform the Cathay Chemical. In addition to that, Tong Hwa is 1.07 times more volatile than Cathay Chemical Works. It trades about -0.06 of its total potential returns per unit of risk. Cathay Chemical Works is currently generating about 0.52 per unit of volatility. If you would invest 4,520 in Cathay Chemical Works on November 3, 2024 and sell it today you would earn a total of 520.00 from holding Cathay Chemical Works or generate 11.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tong Hwa Synthetic Fiber vs. Cathay Chemical Works
Performance |
| Timeline |
| Tong Hwa Synthetic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Cathay Chemical Works |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Tong Hwa and Cathay Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tong Hwa and Cathay Chemical
The main advantage of trading using opposite Tong Hwa and Cathay Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tong Hwa position performs unexpectedly, Cathay Chemical 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 Cathay Chemical will offset losses from the drop in Cathay Chemical's long position.The idea behind Tong Hwa Synthetic Fiber and Cathay Chemical Works 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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