Correlation Between Hua Nan and China Development
Can any of the company-specific risk be diversified away by investing in both Hua Nan and China Development 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 Hua Nan and China Development into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hua Nan Financial and China Development Financial, you can compare the effects of market volatilities on Hua Nan and China Development 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 Hua Nan with a short position of China Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Nan and China Development.
Diversification Opportunities for Hua Nan and China Development
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Hua and China is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hua Nan Financial and China Development Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Development and Hua Nan 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 Hua Nan Financial are associated (or correlated) with China Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Development has no effect on the direction of Hua Nan i.e., Hua Nan and China Development go up and down completely randomly.
Pair Corralation between Hua Nan and China Development
Assuming the 90 days trading horizon Hua Nan is expected to generate 1.0 times less return on investment than China Development. But when comparing it to its historical volatility, Hua Nan Financial is 1.32 times less risky than China Development. It trades about 0.19 of its potential returns per unit of risk. China Development Financial is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,665 in China Development Financial on August 30, 2024 and sell it today you would earn a total of 55.00 from holding China Development Financial or generate 3.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hua Nan Financial vs. China Development Financial
Performance |
| Timeline |
| Hua Nan Financial |
| China Development |
Hua Nan and China Development Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hua Nan and China Development
The main advantage of trading using opposite Hua Nan and China Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hua Nan position performs unexpectedly, China Development 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 Development will offset losses from the drop in China Development's long position.| Hua Nan vs. Taiwan Secom Co | Hua Nan vs. TTET Union Corp | Hua Nan vs. China Steel Chemical | Hua Nan vs. Taiwan Shin Kong |
| China Development vs. Cathay Financial Holding | China Development vs. Mega Financial Holding | China Development vs. CTBC Financial Holding | China Development vs. Fubon Financial Holding |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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