Correlation Between Tang Eng and Chi Hua
Can any of the company-specific risk be diversified away by investing in both Tang Eng 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 Tang Eng and Chi Hua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tang Eng Iron and Chi Hua Fitness, you can compare the effects of market volatilities on Tang Eng 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 Tang Eng with a short position of Chi Hua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tang Eng and Chi Hua.
Diversification Opportunities for Tang Eng and Chi Hua
Poor diversification
The 3 months correlation between Tang and Chi is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Tang Eng Iron 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 Tang Eng 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 Tang Eng Iron 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 Tang Eng i.e., Tang Eng and Chi Hua go up and down completely randomly.
Pair Corralation between Tang Eng and Chi Hua
Assuming the 90 days trading horizon Tang Eng Iron is expected to under-perform the Chi Hua. In addition to that, Tang Eng is 1.19 times more volatile than Chi Hua Fitness. It trades about -0.3 of its total potential returns per unit of risk. Chi Hua Fitness is currently generating about -0.32 per unit of volatility. If you would invest 3,785 in Chi Hua Fitness on October 13, 2024 and sell it today you would lose (205.00) from holding Chi Hua Fitness or give up 5.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Tang Eng Iron vs. Chi Hua Fitness
Performance |
| Timeline |
| Tang Eng Iron |
| Chi Hua Fitness |
Tang Eng and Chi Hua Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tang Eng and Chi Hua
The main advantage of trading using opposite Tang Eng and Chi Hua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tang Eng 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.| Tang Eng vs. First Copper Technology | Tang Eng vs. Tex Ray Industrial Co | Tang Eng vs. China Metal Products | Tang Eng vs. Allied Industrial |
| Chi Hua vs. Formosa Chemicals Fibre | Chi Hua vs. Gamania Digital Entertainment | Chi Hua vs. Transcend Information | Chi Hua vs. Evergreen International Storage |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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