Correlation Between Lung Hwa and Newretail
Can any of the company-specific risk be diversified away by investing in both Lung Hwa and Newretail 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 Lung Hwa and Newretail into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lung Hwa Electronics and Newretail Co, you can compare the effects of market volatilities on Lung Hwa and Newretail 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 Lung Hwa with a short position of Newretail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lung Hwa and Newretail.
Diversification Opportunities for Lung Hwa and Newretail
Very poor diversification
The 3 months correlation between Lung and Newretail is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lung Hwa Electronics and Newretail Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newretail and Lung Hwa 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 Lung Hwa Electronics are associated (or correlated) with Newretail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newretail has no effect on the direction of Lung Hwa i.e., Lung Hwa and Newretail go up and down completely randomly.
Pair Corralation between Lung Hwa and Newretail
Assuming the 90 days trading horizon Lung Hwa Electronics is expected to generate 0.82 times more return on investment than Newretail. However, Lung Hwa Electronics is 1.22 times less risky than Newretail. It trades about 0.09 of its potential returns per unit of risk. Newretail Co is currently generating about 0.03 per unit of risk. If you would invest 2,050 in Lung Hwa Electronics on September 3, 2024 and sell it today you would earn a total of 5,370 from holding Lung Hwa Electronics or generate 261.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lung Hwa Electronics vs. Newretail Co
Performance |
| Timeline |
| Lung Hwa Electronics |
| Newretail |
Lung Hwa and Newretail Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lung Hwa and Newretail
The main advantage of trading using opposite Lung Hwa and Newretail positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lung Hwa position performs unexpectedly, Newretail 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 Newretail will offset losses from the drop in Newretail's long position.| Lung Hwa vs. Tainan Spinning Co | Lung Hwa vs. Chia Her Industrial | Lung Hwa vs. WiseChip Semiconductor | Lung Hwa vs. Novatek Microelectronics Corp |
| Newretail vs. President Chain Store | Newretail vs. Uni President Enterprises Corp | Newretail vs. Taiwan FamilyMart Co | Newretail vs. Eclat Textile Co |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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