Correlation Between Oriental Union and Ho Tung
Can any of the company-specific risk be diversified away by investing in both Oriental Union and Ho Tung 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 Oriental Union and Ho Tung into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oriental Union Chemical and Ho Tung Chemical, you can compare the effects of market volatilities on Oriental Union and Ho Tung 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 Oriental Union with a short position of Ho Tung. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oriental Union and Ho Tung.
Diversification Opportunities for Oriental Union and Ho Tung
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Oriental and 1714 is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Union Chemical and Ho Tung Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ho Tung Chemical and Oriental Union 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 Oriental Union Chemical are associated (or correlated) with Ho Tung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ho Tung Chemical has no effect on the direction of Oriental Union i.e., Oriental Union and Ho Tung go up and down completely randomly.
Pair Corralation between Oriental Union and Ho Tung
Assuming the 90 days trading horizon Oriental Union Chemical is expected to under-perform the Ho Tung. In addition to that, Oriental Union is 2.6 times more volatile than Ho Tung Chemical. It trades about -0.07 of its total potential returns per unit of risk. Ho Tung Chemical is currently generating about -0.15 per unit of volatility. If you would invest 842.00 in Ho Tung Chemical on November 2, 2024 and sell it today you would lose (37.00) from holding Ho Tung Chemical or give up 4.39% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Oriental Union Chemical vs. Ho Tung Chemical
Performance |
Timeline |
Oriental Union Chemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Ho Tung Chemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Oriental Union and Ho Tung Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Oriental Union and Ho Tung
The main advantage of trading using opposite Oriental Union and Ho Tung positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oriental Union position performs unexpectedly, Ho Tung 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 Ho Tung will offset losses from the drop in Ho Tung's long position.The idea behind Oriental Union Chemical and Ho Tung Chemical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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