Correlation Between Hua Nan and Cheng Mei
Can any of the company-specific risk be diversified away by investing in both Hua Nan and Cheng Mei 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 Cheng Mei 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 Cheng Mei Materials, you can compare the effects of market volatilities on Hua Nan and Cheng Mei 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 Cheng Mei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Nan and Cheng Mei.
Diversification Opportunities for Hua Nan and Cheng Mei
Very poor diversification
The 3 months correlation between Hua and Cheng is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hua Nan Financial and Cheng Mei Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Mei Materials 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 Cheng Mei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Mei Materials has no effect on the direction of Hua Nan i.e., Hua Nan and Cheng Mei go up and down completely randomly.
Pair Corralation between Hua Nan and Cheng Mei
Assuming the 90 days trading horizon Hua Nan Financial is expected to generate 0.58 times more return on investment than Cheng Mei. However, Hua Nan Financial is 1.71 times less risky than Cheng Mei. It trades about -0.06 of its potential returns per unit of risk. Cheng Mei Materials is currently generating about -0.06 per unit of risk. If you would invest 2,805 in Hua Nan Financial on December 1, 2024 and sell it today you would lose (20.00) from holding Hua Nan Financial or give up 0.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hua Nan Financial vs. Cheng Mei Materials
Performance |
| Timeline |
| Hua Nan Financial |
| Cheng Mei Materials |
Hua Nan and Cheng Mei Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hua Nan and Cheng Mei
The main advantage of trading using opposite Hua Nan and Cheng Mei positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hua Nan position performs unexpectedly, Cheng Mei 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 Cheng Mei will offset losses from the drop in Cheng Mei's long position.| Hua Nan vs. First Financial Holding | Hua Nan vs. Mega Financial Holding | Hua Nan vs. CTBC Financial Holding | Hua Nan vs. ESUN Financial Holding |
| Cheng Mei vs. Tigerair Taiwan Co | Cheng Mei vs. Chief Telecom | Cheng Mei vs. U Media Communications | Cheng Mei vs. Apacer Technology |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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