Correlation Between Feng Ching and Brighten Optix
Can any of the company-specific risk be diversified away by investing in both Feng Ching and Brighten Optix 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 Feng Ching and Brighten Optix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Feng Ching Metal and Brighten Optix, you can compare the effects of market volatilities on Feng Ching and Brighten Optix 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 Feng Ching with a short position of Brighten Optix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Feng Ching and Brighten Optix.
Diversification Opportunities for Feng Ching and Brighten Optix
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Feng and Brighten is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Feng Ching Metal and Brighten Optix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighten Optix and Feng Ching 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 Feng Ching Metal are associated (or correlated) with Brighten Optix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighten Optix has no effect on the direction of Feng Ching i.e., Feng Ching and Brighten Optix go up and down completely randomly.
Pair Corralation between Feng Ching and Brighten Optix
Assuming the 90 days trading horizon Feng Ching is expected to generate 1.61 times less return on investment than Brighten Optix. But when comparing it to its historical volatility, Feng Ching Metal is 1.32 times less risky than Brighten Optix. It trades about 0.05 of its potential returns per unit of risk. Brighten Optix is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 13,300 in Brighten Optix on November 3, 2024 and sell it today you would earn a total of 300.00 from holding Brighten Optix or generate 2.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Feng Ching Metal vs. Brighten Optix
Performance |
| Timeline |
| Feng Ching Metal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Brighten Optix |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Feng Ching and Brighten Optix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Feng Ching and Brighten Optix
The main advantage of trading using opposite Feng Ching and Brighten Optix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Feng Ching position performs unexpectedly, Brighten Optix 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 Brighten Optix will offset losses from the drop in Brighten Optix's long position.The idea behind Feng Ching Metal and Brighten Optix 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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