Correlation Between Far Eastern and Champion Building
Can any of the company-specific risk be diversified away by investing in both Far Eastern and Champion Building 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 Far Eastern and Champion Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Far Eastern Department and Champion Building Materials, you can compare the effects of market volatilities on Far Eastern and Champion Building 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 Far Eastern with a short position of Champion Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Champion Building.
Diversification Opportunities for Far Eastern and Champion Building
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Far and Champion is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern Department and Champion Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Building and Far Eastern 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 Far Eastern Department are associated (or correlated) with Champion Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Building has no effect on the direction of Far Eastern i.e., Far Eastern and Champion Building go up and down completely randomly.
Pair Corralation between Far Eastern and Champion Building
Assuming the 90 days trading horizon Far Eastern Department is expected to under-perform the Champion Building. But the stock apears to be less risky and, when comparing its historical volatility, Far Eastern Department is 1.99 times less risky than Champion Building. The stock trades about -0.12 of its potential returns per unit of risk. The Champion Building Materials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,120 in Champion Building Materials on September 1, 2024 and sell it today you would lose (80.00) from holding Champion Building Materials or give up 7.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Far Eastern Department vs. Champion Building Materials
Performance |
| Timeline |
| Far Eastern Department |
| Champion Building |
Far Eastern and Champion Building Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Far Eastern and Champion Building
The main advantage of trading using opposite Far Eastern and Champion Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far Eastern position performs unexpectedly, Champion Building 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 Champion Building will offset losses from the drop in Champion Building's long position.| Far Eastern vs. Chaintech Technology Corp | Far Eastern vs. AVerMedia Technologies | Far Eastern vs. Avision | Far Eastern vs. Clevo Co |
| Champion Building vs. China Glaze Co | Champion Building vs. Chung Hwa Pulp | Champion Building vs. Taiwan Glass Ind | Champion Building vs. China Man Made Fiber |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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