Correlation Between Chang Hwa and China
Can any of the company-specific risk be diversified away by investing in both Chang Hwa and China 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 Chang Hwa and China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chang Hwa Commercial and China Motor Corp, you can compare the effects of market volatilities on Chang Hwa and China 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 Chang Hwa with a short position of China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chang Hwa and China.
Diversification Opportunities for Chang Hwa and China
Modest diversification
The 3 months correlation between Chang and China is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Chang Hwa Commercial and China Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Motor Corp and Chang 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 Chang Hwa Commercial are associated (or correlated) with China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Motor Corp has no effect on the direction of Chang Hwa i.e., Chang Hwa and China go up and down completely randomly.
Pair Corralation between Chang Hwa and China
Assuming the 90 days trading horizon Chang Hwa Commercial is expected to generate 0.34 times more return on investment than China. However, Chang Hwa Commercial is 2.91 times less risky than China. It trades about 0.17 of its potential returns per unit of risk. China Motor Corp is currently generating about -0.03 per unit of risk. If you would invest 1,790 in Chang Hwa Commercial on November 5, 2024 and sell it today you would earn a total of 25.00 from holding Chang Hwa Commercial or generate 1.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chang Hwa Commercial vs. China Motor Corp
Performance |
| Timeline |
| Chang Hwa Commercial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| China Motor Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
Chang Hwa and China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chang Hwa and China
The main advantage of trading using opposite Chang Hwa and China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chang Hwa position performs unexpectedly, China 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 China will offset losses from the drop in China's long position.The idea behind Chang Hwa Commercial and China Motor Corp 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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