Correlation Between FDC International and Tong Hwa
Can any of the company-specific risk be diversified away by investing in both FDC International and Tong 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 FDC International and Tong Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FDC International Hotels and Tong Hwa Synthetic Fiber, you can compare the effects of market volatilities on FDC International and Tong 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 FDC International with a short position of Tong Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of FDC International and Tong Hwa.
Diversification Opportunities for FDC International and Tong Hwa
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between FDC and Tong is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding FDC International Hotels and Tong Hwa Synthetic Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Hwa Synthetic and FDC International 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 FDC International Hotels are associated (or correlated) with Tong Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Hwa Synthetic has no effect on the direction of FDC International i.e., FDC International and Tong Hwa go up and down completely randomly.
Pair Corralation between FDC International and Tong Hwa
Assuming the 90 days trading horizon FDC International Hotels is expected to generate 2.17 times more return on investment than Tong Hwa. However, FDC International is 2.17 times more volatile than Tong Hwa Synthetic Fiber. It trades about 0.11 of its potential returns per unit of risk. Tong Hwa Synthetic Fiber is currently generating about -0.06 per unit of risk. If you would invest 6,040 in FDC International Hotels on November 3, 2024 and sell it today you would earn a total of 280.00 from holding FDC International Hotels or generate 4.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FDC International Hotels vs. Tong Hwa Synthetic Fiber
Performance |
| Timeline |
| FDC International Hotels |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| Tong Hwa Synthetic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
FDC International and Tong Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FDC International and Tong Hwa
The main advantage of trading using opposite FDC International and Tong Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FDC International position performs unexpectedly, Tong 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 Tong Hwa will offset losses from the drop in Tong Hwa's long position.The idea behind FDC International Hotels and Tong Hwa Synthetic Fiber 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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