Correlation Between China Man and Chung Hwa
Can any of the company-specific risk be diversified away by investing in both China Man 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 China Man and Chung Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Man Made Fiber and Chung Hwa Pulp, you can compare the effects of market volatilities on China Man 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 China Man with a short position of Chung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Man and Chung Hwa.
Diversification Opportunities for China Man and Chung Hwa
Poor diversification
The 3 months correlation between China and Chung is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Man Made Fiber 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 China Man 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 China Man Made Fiber 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 China Man i.e., China Man and Chung Hwa go up and down completely randomly.
Pair Corralation between China Man and Chung Hwa
Assuming the 90 days trading horizon China Man Made Fiber is expected to under-perform the Chung Hwa. But the stock apears to be less risky and, when comparing its historical volatility, China Man Made Fiber is 1.83 times less risky than Chung Hwa. The stock trades about -0.01 of its potential returns per unit of risk. The Chung Hwa Pulp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,675 in Chung Hwa Pulp on September 4, 2024 and sell it today you would earn a total of 115.00 from holding Chung Hwa Pulp or generate 6.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Man Made Fiber vs. Chung Hwa Pulp
Performance |
| Timeline |
| China Man Made |
| Chung Hwa Pulp |
China Man and Chung Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Man and Chung Hwa
The main advantage of trading using opposite China Man and Chung Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Man 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.| China Man vs. Oriental Union Chemical | China Man vs. China Petrochemical Development | China Man vs. Taiwan Styrene Monomer | China Man vs. Grand Pacific Petrochemical |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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