Correlation Between Chung Fu and Chi Hua
Can any of the company-specific risk be diversified away by investing in both Chung Fu and Chi Hua 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 Chung Fu and Chi Hua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chung Fu Tex International and Chi Hua Fitness, you can compare the effects of market volatilities on Chung Fu and Chi Hua 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 Chung Fu with a short position of Chi Hua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Fu and Chi Hua.
Diversification Opportunities for Chung Fu and Chi Hua
Very poor diversification
The 3 months correlation between Chung and Chi is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Chung Fu Tex International and Chi Hua Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Hua Fitness and Chung Fu 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 Chung Fu Tex International are associated (or correlated) with Chi Hua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Hua Fitness has no effect on the direction of Chung Fu i.e., Chung Fu and Chi Hua go up and down completely randomly.
Pair Corralation between Chung Fu and Chi Hua
Assuming the 90 days trading horizon Chung Fu Tex International is expected to under-perform the Chi Hua. In addition to that, Chung Fu is 2.5 times more volatile than Chi Hua Fitness. It trades about -0.04 of its total potential returns per unit of risk. Chi Hua Fitness is currently generating about -0.09 per unit of volatility. If you would invest 4,015 in Chi Hua Fitness on November 3, 2024 and sell it today you would lose (530.00) from holding Chi Hua Fitness or give up 13.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chung Fu Tex International vs. Chi Hua Fitness
Performance |
| Timeline |
| Chung Fu Tex |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Chi Hua Fitness |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Chung Fu and Chi Hua Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chung Fu and Chi Hua
The main advantage of trading using opposite Chung Fu and Chi Hua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Fu position performs unexpectedly, Chi Hua 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 Chi Hua will offset losses from the drop in Chi Hua's long position.The idea behind Chung Fu Tex International and Chi Hua Fitness 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 Valuation module to check real value of public entities based on technical and fundamental data.
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